Brazil Central Bank Sees Inflation Near Target, Cuts 2026 Growth Forecast

Brazil's central bank on Thursday projected inflation close to its 3% target at the policy horizon that will matter for its next interest-rate decision, strengthening expectations of additional easing this year following last week's fifth consecutive rate cut.

In its quarterly monetary policy report, the bank forecast annual inflation of 3.1% in the second quarter of 2028 — the key horizon for its November meeting — and the same level through the first quarter of 2029.

The projections are likely to reinforce market bets that the bank will deliver another rate cut this year. Last week it lowered its benchmark Selic rate by 25 basis points to 13.75%, while leaving its next steps open.

The monetary authority also trimmed its forecast for 2026 economic growth to 1.8% from 2.0%, and for the first time projected gross domestic product growth of 1.4% in 2027.

Those estimates are notably more cautious than forecasts released by President Luiz Inacio Lula da Silva's government, which on Tuesday projected GDP growth of 2.0% in 2026 and 2.3% in 2027.

Policymakers said the downward revision for this year reflected early third-quarter indicators pointing to weaker-than-expected activity as well as a less favorable composition of growth in the second quarter.

The central bank noted that upside surprises in GDP between April and June were concentrated in sectors less sensitive to the economic cycle, particularly agriculture and extractive industries, while more cyclical supply sectors and household consumption fell short of expectations.

For 2027, the bank's outlook assumes monetary policy will remain restrictive, with limited spare capacity and a highly uncertain external environment. It also factors in a fading impulse from fiscal and credit stimulus, alongside a more limited contribution from agriculture and extractive industries to economic growth.