Bad moon rising

BRAZIL ECONOMICS - Report 30 Mar 2026 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

The conflict in the Middle East has significantly altered the balance of risks for inflation; at the same time, the revision of BCB’s forecasts appears insufficient given the current scenario. Upside risks have intensified asymmetrically relative to downside risks. In addition, oil prices are already operating well above the reference scenario path, the exchange rate faces depreciation pressures, and the output gap continues to decline at a slow pace. To these factors one must consider also the likely government response to the oil shock amid declining presidential approval. Even so, our expectation is for another 0.25 p.p. cut in April, although there is considerable uncertainty regarding this decision, given that inflation projections should remain above the target over the relevant horizon.

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