Ahead of 1 August, the US’ threat to raise Brazil’s tariff rate from 10% to 50% would represent the most severe increase. 

The Brazilian real has so far held strong since the announcement, supported by high interest rates and Brazil’s low direct exposure to US trade. 

We still see the main transmission from US trade policy to Brazilian growth being through tariffs weighing on global activity and demand, rather than tariffs on Brazil itself. Indeed, President Trump’s announcement on 30 July that several products will be exempt from the blanket 50% tariff reinforces this view.

After the Banco Central do Brasil raised its Selic rate by 450bps from September to a 15% peak in June, trade-related currency risks and still elevated inflation expectations in our view rule out a return to rate cuts until Q1 2026.

We forecast gradual Selic cuts towards 12.5% by the end of 2026. However, the pace of easing next year risks being limited by pre-election fiscal policy, which could renew price pressures and market volatility.

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