LowIV Macro Policy & Sovereign Debt28 September 2026, Monday · 14:25 TRT (UTC+3)

Brazil's inflation forecast rises while year-end Selic expectations hold

In the Central Bank of Brazil's Focus survey of 28 September, the 2026 inflation forecast rose from 4.92% to 4.99%. Economists left the year-end Selic rate at 13.50%. The August current account deficit came in below expectations at 5.1 billion dollars.

Location: BRASÍLIA

According to Rallies, citing Reuters, the 2026 inflation expectation in the Central Bank of Brazil's weekly Focus survey of economists' forecasts rose from 4.92% to 4.99%. The 2027 forecast edged up from 4.30% to 4.31%. Economists expect the Selic policy rate to fall to 13.50% by the end of 2026 and to 12.00% by the end of 2027. The growth forecast was cut from 1.88% to 1.86% for 2026 and from 1.43% to 1.41% for 2027. The exchange-rate expectation was unchanged at 5.20 reais per dollar for year-end and 5.28 for the end of 2027.

According to The Rio Times' morning bulletin of 28 September, the August current account deficit was 5.1 billion dollars. Expectations had been 6.2 billion dollars, and July's revised deficit was 9.4 billion dollars. Foreign direct investment of 7.4 billion dollars covered the entire deficit that month. The bulletin put the Ibovespa at 182,991 points and the dollar at 5.16 reais. Sources diverge on the current Selic level. The morning bulletin gives 14.00%, while the same publication's pre-open note mentions either a cut to 13.50% by year-end or a pause at 13.75%; the current level could not be verified.

Talay assessment

Bottom line

Successive increases in inflation expectations narrow the room for the Central Bank of Brazil to deliver the cut planned before year-end. Full financing of the current account deficit through direct investment supports the real. That acts as a buffer against pressure from oil and US yields. The unchanged year-end Selic expectation shows markets have not yet abandoned hopes of a cut.

Likely effects

Brazil monetary policyNegative1–6 months
Cutting rates while inflation expectations rise would strain the central bank's credibility; the easing timetable could be delayed.
RealPositiveWeeks
Direct investment covering the current account deficit supports the real; the exchange-rate expectation was also unchanged.
Emerging marketsUncertain1–6 months
The shift in Brazil's expectations shows the oil shock limiting rate-cutting cycles in emerging economies; a similar constraint applies to Türkiye.

Possibilities, ranked

1
Expectations keep drifting50%
The inflation forecast keeps rising and the year-end Selic expectation is revised upwards.
Watch: Year-end Selic forecast in next week's Focus survey
2
Balance holds35%
Forecasts settle at this level and markets keep expecting a year-end cut.
Watch: Focus 2026 inflation forecast
3
Rapid deterioration15%
Oil and dollar pressure intensify, the real weakens and expectations of a cut disappear entirely.
Watch: USD/BRL and Brent

Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.

Market reaction

Indicators affected

2026 IPCA expectation▲ 4.99%
August current account deficit▼ $5.1 billion