Brazil: Monetary Orthodoxy Will Be Temporary

The Central Bank of Brazil (BCB) raised interest rates last week. Is this the commencement of a major tightening cycle that will persist well into next year? Despite this move, we maintain that the BCB will cut interest rates substantially next year. We believe the Lula-nominated board members are playing the long game: voting to hike rates until year-end to establish credibility with financial markets in order to get a pass at easing monetary policy in early 2025.