US Bank Lowers Brazil Rate Cut Expectations to 25 Basis Points Due to Geopolitical Risks

Investing.com - Bank of America has revised its forecast for the Central Bank of Brazil, now expecting a 25 basis point rate cut this week instead of the previously anticipated 50 basis points, citing the rapid escalation of geopolitical tensions.

The Central Bank of Brazil hinted at the January meeting that there is room to begin relaxing the country’s highly restrictive monetary policy stance. Bank of America states that this guidance remains valid even amid increasing global uncertainty.

Bank of America notes that soaring and volatile oil prices have added upside risks to inflation prospects. The institution believes that the war-driven oil shocks are largely exogenous, allowing the central bank to ignore the first-round effects and focus on containing potential second-round pressures.

A 25 basis point rate cut will still keep the real policy rate above 10%, well above Bank of America’s estimated neutral rate of 5.5%, maintaining a highly tightening stance.

Bank of America expects that, regardless of the initial cut size, policymakers will remain cautious and avoid providing clear forward guidance on future easing steps.

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