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PREVIEW: BCB Policy Decision on Wednesday, 17th June 2026 at 22:30BST/17:30EDT

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PREVIEW: BCB Policy Decision on Wednesday, 17th June 2026 at 22:30BST/17:30EDT

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  • The latest Reuters poll sees the Copom delivering a third consecutive 25bps cut, as policymakers battle persistent inflation pressures while gradually unwinding borrowing costs from near two-decade highs. Policymakers are likely to repeat a cautious tone in their statement, given persistent consumer price pressures, analysts added.
  • Inflation in Brazil surprised to the upside in May, as IPCA rose 0.6% M/M (exp. 0.5%), with Y/Y inflation rising to 4.72% (exp. 4.65%, prev. 4.4% in April), leaving inflation further above the BCB's target range.
  • Pantheon Macroeconomics notes this implies the BCB will have limited room to ease policy this year. Higher food prices and electricity tariffs drove the deterioration, while resilient domestic demand continues to support underlying inflation pressures. Pantheon adds that a combination of external shocks, adverse weather conditions and persistent services inflation is making the disinflation process increasingly difficult. Pantheon continues to look for modest easing this year, with the Selic ending 2026 at 13.50%, from 14.50% currently, but said the forecast is becoming increasingly difficult to justify. The consultancy expects inflation to end 2026 at around 5.2%, with risks skewed to the upside.
  • Last time out, the central bank cut rates by 25bps to 14.5%, as expected, with the Copom giving no guidance on future moves and saying current inflation and consumer price expectations had moved further above its 3% target. The BCB justified extending rate cuts as "calibration", saying the prolonged period of restrictive monetary policy still showed evidence that economic activity was slowing in 2026, bringing its inflation projection to a level compatible with the target despite oil shocks.
  • Since the previous meeting, the BCB's market focus readout has lifted its Selic rate view a couple of times, with end-2026 now seen at 13.75% and end-2027 at 12%. 
  • BCB President Galipolo said interest rates were at a very restrictive level, but the economy had shown resilience, while Director David said de-anchored inflation expectations forced rates higher for longer, and that the BCB was keeping policy contractionary until it was convinced inflation was heading back towards target.
  • On trade, the US accused Brazil of restrictive trade practices and proposed a 25% tariff on Brazilian products, with exemptions including aircraft, coffee and orange juice, while President Lula said the latest tariffs were unacceptable.
  • Overall, Rabo writes that, with expectations for a narrowing interest rate differential between Brazil and advanced economies through 2026 and a potential recovery in the US dollar globally against a fragile fiscal backdrop in an election year, it expects USD/BRL to appreciate towards 5.35 by year-end. For reference, USD/BRL currently trades around 5.10.

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