Beyond the horizon

BRAZIL ECONOMICS - Report 19 May 2025 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

The Central Bank has likely come to the end of the monetary tightening cycle, or has reached very close to it, even as its own inflation forecasts remain above target for the relevant horizon. Moreover, these forecasts—highly dependent on demand behavior—still appear optimistic, based on the assumption of moderating growth in the coming quarters.

For activity to remain in line with expectations under the current level of monetary restriction, the fiscal-monetary conflict will need to be mitigated, which we regard as unlikely. Meanwhile, activity signals for the first quarter are mixed, but we continue to expect resilient demand, supported by government stimulus measures and a robust labor market.

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