Investing in Brazil

Latest edition · September 25, 2026

Investing in Brazil en 1667185

Proposals to raise Brazil's 3% inflation target to 4% to lower interest rates are misguided, as fiscal framework fragility—not the target—is the true hurdle. A credible fiscal adjustment should be paired with Central Bank patience to convert disinflation into lasting credibility and lower long-term real rates.

Amid elevated public debt and high real interest rates, debates have emerged in Brazil suggesting the inflation target should be raised from 3% to 4% once fiscal credibility improves. UBS argues this would be counterproductive: raising the target immediately after gaining credibility would institutionalize higher inflation and inflate risk premiums. Drawing lessons from the 2016–2018 Goldfajn disinflation cycle, the report emphasizes that fiscal adjustment must come first, followed by monetary policy focused on firmly reanchoring expectations before delivering sustained rate cuts. Today's task is tougher due to a tight labor market, upside food risks from El Niño, and expanding subsidized credit, underscoring the need for the Central Bank to maintain its reaction function and resist premature easing.

Key takeaways from the latest edition

• 1.Brazil's inflation target should remain at 3%; raising it to around 4% after fiscal credibility is restored would be dangerous and counterproductive, undermining policy predictability and raising risk premiums.
• 2.The Central Bank should not rapidly convert favorable fiscal or FX shocks into aggressive Selic cuts, but rather allow shocks to sustainably anchor long-term inflation expectations at target.
• 3.Current conditions are more challenging than the 2016–2018 disinflation cycle because the labor market is tight, El Niño poses food inflation risks, and subsidized credit expansion softens monetary policy transmission.

What this series covers

• Selic rate (%)
• Selic rate (lhs, %) vs. deviation from the inflation target 6m12m (rhs)
• Inflation expectations: IPCA annual median and Selic rate (%)
• Food-at-home inflation
• 10-year real interest rate and currency
• Selic rate
• Inflation expectations: IPCA annual median (%)
• Long-term expectations — Deviation (%)

Edition archive

• Investing in Brazil en 1667185

  September 25, 2026

• Investing in Brazil en 1667108

  September 25, 2026

• Investing in Brazil en 1666901

  September 22, 2026

• Investing in Brazil en 1661287

  June 9, 2026