Chart of the week: Why ending the easing cycle in Brazil now would be a mistake

This week the Banco Central do Brasil (BCB) lowered the Selic rate to 2.00%. Although our baseline scenario is for further rate cuts in the coming months, our Taylor rule suggests that rates should go even lower, between zero and 1%. We continue to believe the BCB will eventually be forced to cut rates again in the coming months and it won’t need to hike by as much as markets currently price in.