Brazil's BCB Opens The Door To August Cut, Though Will Maintain Cautious Approach

• After holding at 13.75% at its June 20-21 meeting, Fitch Solutions suspects the Banco Central do Brasil (BCB) will begin an easing cycle at its next meeting on August 2, lowering the Selic rate to 13.50%.
• Fitch sees the Selic at 12.50% at the end-2023 and 10.00% at the end-2024.
• While moderating inflation and reduced risks from fiscal policy will allow the bank to cut, Fitch’s forecast assumes the cycle will be cautious, due to still-elevated inflation expectations, a tight labour market and a relatively hawkish US Fed.
• Risks to the forecast are to the upside. While cuts are seen as very likely in H223, they could well start later in the year, or be less aggressive, than currently factored in.

(Source: Fitch Solutions)