‘Interest rate cut should be lower than the market believes,’ says Chief Economist of Citi Brazil.

In Porto’s view, the monetary easing cycle should be shorter due to a combination of a tighter labor market, which puts pressure on service inflation, and an expectation of an acceleration in the Brazilian economy throughout 2024.

“The Central Bank will continue cutting rates by 50 basis points in the next two meetings, but will stop in June, with the Selic at 10%,” Porto says. “Ultimately, this Selic rate stems from a scenario we are envisioning, more or less in the middle of the year, of inflation that has not yet converged to the target alongside an economy that will show clear signs of reacceleration.”

The Brazilian economy faces a complex set of challenges amid ongoing political and economic uncertainties. In recent years, Brazil has grappled with sluggish growth, high unemployment rates, and persistent fiscal deficits.

Political instability and corruption scandals have further undermined investor confidence and hindered efforts to implement structural reforms necessary for sustainable economic growth.

The country’s agricultural sector remains a key driver of growth, as Brazil is a leading global exporter of commodities such as soybeans, sugar, and coffee. The main problem is that, in the last year, these commodities have also decreased in value.

As a matter of fact, soybeans have reached their lowest price in three years, according to Chicago Mercantile Exchange values.

Addressing these challenges and implementing sound economic policies will be crucial to unlocking Brazil’s full economic potential and fostering inclusive growth.