1Q26_ Quarterly Outlook Report_Final_EN - Flipbook - Page 98
T H E P LUMB LI N E | A RETU RN TO F I RS T PRI N CI PL ES
horizon. With the start of a new policy cycle also comes a wide range of expectations for how
fast policymakers may shift rates, as well as an equally wide range of expectations for financial
market performance and economic growth. Beyond the uncertain BCB path, the outlook is
clouded by the October 2026 presidential election, where incumbent Luiz Inácio Lula da Silva
will face off against an as-yet-undetermined right-wing candidate – each side with sharply
different approaches to public policy and private-sector relations.
Brazilian private sector job growth has ground to a halt
15%
YoY change, 3mma
12%
9%
6%
3%
0%
-3%
2022
Total employment
2023
2024
All other private
2025
Public, defense, health, and education
Source: IBGE, Scotia Wealth Management.
Recent economic and inflation readings have firmed up our confidence that the BCB will begin
cutting rates in early 2026, but visibility into the path ahead is limited. After 450 bps in rate
hikes between September 2024 and June 2025 to a 15% policy rate level (above the 13.75%
peak in April 2023, before cuts to 10.50%), the median economist polled by the BCB expects the
central bank to roll out 300 bps in cuts by end-2026, bringing the rate to 12.00%, followed by an
additional 150 bps in 2027 to reach 10.50%. Markets are somewhat aligned with economists in
their expectations for the current year, with ~250 bps in cuts by December 2026 already priced
in (market-implied rates get spotty after that). However, recent moves in Brazilian debt related
to political developments (more below) have clearly shown that traders are not shy to change
their thinking for the BCB based on election risks and Lula’s odds of victory.
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