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Brazilian lender Itaú BBA revises its outlook for the Selic rate and the dollar in a report published on Friday. The bank now signals the Selic will move lower, and the dollar could finish the year higher, according to chief economist Mário Mesquita. Mesquita notes that the central bank is likely to deliver only one more quarter point cut at the upcoming Copom meeting, with the calibration cycle nearly finished. He cautions that inflation risks and slower growth raise the possibility that the final cut may not occur, while the base case still points to further easing in the coming year. On the FX side, the dollar is seen strengthening as external conditions become less favorable for the real, with shifts in global rates and terms of trade weighing on the currency.
- Itaú BBA expects another small Selic cut in August before the cycle slows.
- They forecast the dollar ends the year higher and climbs again next year, signaling a weaker real.
- The report says the central bank is cautious and close to finishing its calibration on policy.
- The base case still includes further easing after the near term, but the last cut isn’t guaranteed.
- External and domestic risks, like a stronger Fed path and weaker oil, point to depreciation pressure for the currency.
Itaú BBA Revises Selic and FX Outlook
Key Forecasts
Itaú BBA updated its Brazil outlook, lifting its projections for the Selic path and the dollar. The bank now expects the policy rate to fall to 14.00%, from 14.25%, which is 0.25 percentage points above its earlier forecast of 13.75%. The dollar forecasts were also raised, with the bank seeing the currency ending 2026 around R$ 5.30 and 2027 around R$ 5.50 (versus R$ 5.15 and R$ 5.35 previously).
Policy Path
The adjustment comes from a report by Itaú BBA’s Chief Economist, Mário Mesquita. He projects only one more 0.25 pp cut at the August Copom meeting. Mesquita argues that the inflation message in the committee’s latest communications is less favorable, indicating a calibration cycle that is nearly finished. He notes the committee remains cautious but not closed to further easing, with the eventual size of any reduction to depend on incoming data. The risk balance is described as upside skewed, suggesting that room for further easing is rapidly narrowing.
Conclusion
Itaú BBA’s updated outlook signals a cautious, data‑driven path for Brazil’s policy rate and currency. It now expects the Selic to be around 14.00% after one final 0.25pp cut at the Copom meeting, with the central bank’s calibration cycle nearly finished. The base case still allows for further easing, but the risk balance is upside skewed, making the last cut far from guaranteed. On the FX side, a stronger dollar appears likely as external conditions and terms of trade weigh on the real, with the real’s depreciation path pointing to roughly R$5.30 by end‑2026 and around R$5.50 by end‑2027. In sum, the report presents a near‑term easing bias tempered by persistent inflation and growth risks, reinforcing a cautious approach as policy nears the end of its calibration.
Frequently asked questions
– What is Itaú BBA’s new Selic forecast?
Itaú BBA now sees the Selic at 14.00% after the next cut, 0.25 percentage point above its prior forecast of 13.75%.
– When will the last Selic cut occur and by how much?
There will be one more cut of 0.25 percentage point in August.
– What are Itaú BBA’s end-2026 and end-2027 dollar projections?
Dollar ends 2026 at 5.30 reais and 2027 at 5.50 reais.
– What could derail Itaú’s Selic path?
If inflation stays above target and activity stays strong, the last cut may not happen.
– Why does Itaú see a stronger dollar ahead?
The Fed may raise rates, oil prices weigh on Brazil’s terms of trade, and domestic risk premia rise in election years.