Inflation Projections Continue to Decline. FX Begin to Adjust
- We have been highlighting three extremely important dynamics regarding financial market projections:
- The consolidation of the exchange rate at around BRL 5.20/USD had been slow to affect the median estimates. Not anymore. The consensus for end-2026 declined from BRL 5.50/USD to BRL 5.45/USD over the past two weeks. It will continue to fall.
- Inflation projected for the current year has been declining for seven consecutive weeks (3.91% in the latest reading) but has not yet affected expectations for 2027 (stable at 3.80% for 16 weeks). It is only a matter of time
- Lower exchange rates and inflation are already leading to revisions in Selic rate projections: 12.125% for 2026, down from 12.50% in the previous week. It is expected to decline further.
- An important detail is that inflation estimates remain significantly lower for administered prices than for free-market prices (Chart 1). This poses a particular challenge for the convergence of expectations toward the target.
- GDP consensus remains broadly unchanged (1.82% for 2026, 1.80% for 2027, and 2.0% for 2028). Analysts seem to strongly believe this corresponds to the economy’s potential growth rate—quite weak for a country with Brazil’s social demands.
- The current account deficit in 2026 (USD 67.7 billion) remains comfortably financed by the consensus for foreign direct investment (stable at USD 75 billion).
- Expectations regarding fiscal dynamics reflect a well-established pessimism. Even as the market improves projections for various macroeconomic variables in 2026, the consensus points to a further deterioration in the expected long-term public debt trajectory. This is, without a doubt, the main macroeconomic issue to be addressed after the elections (Chart 2).
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