Brazil's 2026 inflation expectation rises to 5.04%, year-end Selic expectation remains at 13.25%

Overview

This report focuses on expectations for inflation, interest rates, growth, fiscal conditions, and exchange rates in the Brazilian central bank's weekly survey of market analysts. The core conclusion is that Brazil's 2026 inflation expectation continues to rise and is significantly above the upper bound of the target range, while medium-term inflation expectations have still not returned to the 3.0% target; at the same time, the market's median expectation for the Selic rate path remains stable, indicating that the high-interest-rate environment may persist. On the fiscal side, the market still expects the primary fiscal balance to remain in deficit through 2028, and the nominal fiscal deficit to stay deeply negative in the medium term.

Core views

The report argues that the continued deterioration in 2026 inflation expectations is the most important macro signal, and that fiscal expectations have failed to align with the government's non-negative balance target, indicating weak credibility and anchoring effect of the fiscal framework. On growth expectations, 2026 real GDP growth was revised up slightly to 1.89%, but the 2027 expectation was revised down to 1.70%. Exchange rate expectations improved slightly, with year-end BRL/USD expected at 5.17 for 2026 and 5.26 for 2027.

Analysis framework

The analysis is mainly based on the median of the Brazilian central bank's weekly survey of market analysts, comparing the latest expectations with those of the previous week or prior weeks, and contrasting inflation expectations with official targets and fiscal expectations with the government's target path.

Methodology notes

• Macro Expectations SurveyBrazilian Central Bank Weekly Survey of Market Analysts

  Median expectation tracking

  The report uses the median expectations of market analysts for inflation, the Selic rate, real GDP growth, fiscal balance, and the BRL/USD exchange rate to observe changes in expectations and their deviations from policy targets.

• Policy credibility assessmentComparison of inflation target and fiscal anchoring

  Target deviation and anchoring effect

  By comparing the gap between inflation expectations and the inflation target, and between fiscal balance expectations and government targets, the report assesses the credibility and constraining power of monetary policy and the fiscal framework.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Brazil local-currency rates / Selic-related assets

  Directly related

  Strengths

  Higher Selic expectations may support nominal carry and the attractiveness of yields on some local-currency fixed-income assets.

  Weaknesses

  Inflation expectations remain persistently above target, which may delay the easing cycle and pressure valuations of duration assets.

  Comparison

  Year-end Selic expectations for 2026/2027/2028 remain at 13.25%/11.25%/10.00%, still reflecting a tight policy environment relative to the inflation target.

  Risks

  If inflation expectations continue to rise or confidence in the fiscal framework declines, rates may stay higher for longer.

• BRL/USD

  Indirect macro-related

  Strengths

  Year-end exchange rate expectations for 2026 and 2027 improved slightly from the previous week.

  Weaknesses

  Fiscal deficits and deviation from the inflation target may still undermine BRL stability.

  Comparison

  The year-end 2026 expectation improved from 5.20 to 5.17, and the year-end 2027 expectation improved from 5.27 to 5.26.

  Risks

  Fiscal deterioration, renewed inflation acceleration, or weaker external risk appetite could create depreciation pressure.

• Brazilian sovereign debt / credit risk

  Directly related

  Strengths

  The market can still obtain compensation through high nominal yields.

  Weaknesses

  The persistent primary fiscal deficit and nominal deficit above 7% in the medium term indicate pressure on debt sustainability.

  Comparison

  Market expectations for the primary fiscal balance are clearly weaker than the government's non-negative target path.

  Risks

  Continued rise in public-sector debt, failure of fiscal framework anchoring, and wider risk premiums.

Key data

• 2026 inflation expectation5.04%Up 12bp from the previous week, after already rising a cumulative 101bp over the prior ten weeks, above the 4.50% upper bound of the inflation target.
• 2027/2028/2029 inflation expectations4.01%/3.65%/3.50%All are above the 3.0% inflation target.
• Year-end Selic rate expectations for 2026/2027/202813.25%/11.25%/10.00%Median expectations remain unchanged.
• 2026/2027 real GDP growth expectations1.89%/1.70%2026 was revised up from 1.85% to 1.89%, while 2027 was revised down from 1.77% to 1.70%.
• 2026/2027/2028 primary fiscal balance expectations-0.50%/-0.40%/-0.10% GDPThe market still expects deficits, contrary to the government's non-negative or gradually improving targets.
• 2026/2027/2028/2029 nominal fiscal deficit expectations8.50%/8.00%/7.50%/7.20%The report says the medium-term nominal fiscal deficit is still expected to remain deeply negative, above 7%.
• Year-end BRL/USD expectations for 2026/20275.17/5.26They were 5.20/5.27 the previous week, showing slight improvement in expectations.

Impact & implications

For asset prices, inflation expectations that remain above target together with fiscal deficit pressure may limit the Brazilian central bank's room to cut rates, keeping local-currency interest rates at relatively high levels and increasing sovereign risk premiums. Slight improvement in exchange rate expectations provides some buffer, but if fiscal credibility remains insufficient or inflation expectations rise further, the BRL and Brazilian local risk assets will still face volatility pressure.

Risks

• Further de-anchoring of inflation expectations, forcing monetary policy to remain tight for longer.
• A persistently negative primary fiscal balance undermines the credibility of the government's fiscal targets and increases debt pressure.
• The nominal fiscal deficit remains above 7% in the medium term, which could raise sovereign risk premiums.
• The improvement in growth expectations is limited, and the 2027 growth expectation was revised down, indicating that macro momentum is not yet solid.
• Although BRL/USD improved slightly, it remains affected by fiscal conditions, inflation, and external risk appetite.

What to watch

• Whether the 2026 inflation expectation continues to rise in subsequent weekly surveys by the Brazilian central bank.
• Whether the year-end Selic path changes from the current 13.25%/11.25%/10.00%.
• Whether the gap between the government's fiscal targets and market expectations for the primary fiscal balance narrows.
• Whether expectations for the nominal fiscal deficit and public-sector debt continue to deteriorate.
• Changes in BRL/USD expectations and their feedback into inflation expectations.