Santander sees weaker GDP and stubborner inflation in Brazil until 2027, but maintains projection for Selic

Banco Santander's economists have revised their outlook for Brazil, now expecting weaker GDP growth alongside more persistent inflation through 2027, while keeping their existing forecast for the Selic policy rate unchanged. The combination points to a stagflation-leaning mix in which the central bank faces slower activity without the inflation relief that would normally justify easing. Because the Selic path is held constant despite higher inflation expectations, the implied real policy rate would remain elevated, widening the gap between domestic yields and those of lower-rate trading partners and supporting the real's carry appeal to foreign investors. Brazilian sovereign rates and rate-sensitive domestic equities are most exposed, since markets must reprice the trade-off between a tight-for-longer policy stance and a softer growth backdrop. Traders should watch the next IPCA inflation release from IBGE and the Central Bank's Focus survey of market expectations for the 2026 and 2027 Selic trajectory, as any upward drift in those forecasts would test the assumption that the policy rate can stay unchanged.

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