By Brazil Stock Guide – Brazil’s central bank is beginning to win the fight against stubborn inflation expectations, according to Itaú Unibanco (NYSE: ITUB) Chief Economist Mário Mesquita. Speaking to reporters in São Paulo on Wednesday, Mesquita said the monetary authority’s restrictive stance is showing results and should be maintained until inflation is firmly on track.
“The Central Bank is starting to win the battle of expectations (on inflation), which is very good,” Mesquita said. “Monetary policy is starting to reap the benefits of all the effort made, which in our view is an incentive to maintain the current stance.”
Selic rate outlook
Last month, policymakers at the Banco Central do Brasil halted their tightening cycle and unanimously held the Selic benchmark rate at 15%. Officials signaled that rates would remain at this level for a “prolonged period” to ensure inflation converges toward the 3% target.
Despite concerns over resilient activity, labor market pressure and the risk of unanchored expectations, recent surveys have offered some relief. The central bank’s weekly Focus report showed analysts cut their 2025 consumer price forecast for the 13th straight time to 4.86%, from 4.95% previously. Projections for 2026 also declined for a sixth week to 4.33%.
Real strengthens as dollar weakens
The Brazilian real has also gained support from global dollar weakness.
“The real strengthened in line with other currencies. We are seeing an episode of dollar weakening,” Mesquita noted, adding that there is still room for the U.S. currency to decline further. So far this year, the dollar has fallen 11.8% against the real.