UBS Outlook: Central Banks in Brazil and Peru Navigate Inflation and Global Shifts

As Brazil’s Central Bank prepares for its May 6-7 Monetary Policy Committee (Copom) meeting and Peru’s central bank continues its观望 stance, UBS analysts highlight a critical balancing act between domestic inflation pressures and shifting global dynamics. With Brazil’s inflation lingering above target and Peru’s economy showing resilience, the path for monetary policy diverges—yet both face headwinds from U.S. trade policies and global disinflation.

Brazil: A Tightrope Between Inflation and Global Cooling

Brazil’s Central Bank faces a dilemma: persistent inflation versus the need to ease financial conditions. The Focus Report, released May 5, revised the 2025 Selic rate forecast downward to 14.75%, from 15%, signaling anticipation of an earlier easing cycle. Analysts expect the Copom meeting to deliver a 0.25%-0.50% rate hike, smaller than the previous 1% increase, as real interest rates near a 20-year high of ~10%.

Inflation Risks:
Despite the downward revision, the median inflation forecast (IPCA) remains elevated at 5.53%, above the 4.5% ceiling. Services inflation—a key driver—remains sticky due to credit dynamics, while manufactured goods prices could drop unless the U.S. dollar strengthens unexpectedly.

Global Tailwinds:
UBS notes that a weaker U.S. dollar—driven by potential Fed rate cuts amid U.S. stagflation—could ease pressure on Brazil’s currency and create room for domestic easing. “If the Fed pauses or cuts rates, Brazil’s real may stabilize, allowing the Central Bank to pivot sooner,” said UBS’s Brazil CIO Luciano Telo.

Peru: Stability Amid Global Uncertainty

Peru’s Central Bank (BCRP) maintained its policy rate at 4.75% in April 2025, citing inflation stability and external risks. Annual inflation fell to 1.28% in March—the lowest since 2018—and remains within the 1%-3% target range.

The Case for Easing:
Analysts like BBVA and Goldman Sachs predict a 25-basis-point cut by mid-2025, with Peru’s economy projected to grow 3.1% in 2025, outpacing Brazil’s 2% expansion. UBS attributes this resilience to high export prices (notably in mining) and fiscal consolidation, with the deficit narrowing to 2.4% of GDP this year.

Risks Ahead:
While inflation is subdued, political uncertainty ahead of elections could delay policy decisions. “Peru’s central bank must navigate trade-offs between supporting growth and avoiding complacency,” warned UBS analysts. A stronger sol—projected to trade at 3.60–3.70 per USD by 2026—could further ease import costs, but election-related volatility may test this trajectory.

Conclusion: Divergence in Policy Paths, Convergence in Global Drivers

Brazil and Peru’s central banks are responding to similar global pressures—U.S. trade tensions, commodity demand fluctuations, and Fed policy—yet their approaches differ. Brazil’s tighter stance reflects lingering inflation risks, while Peru’s cautious easing hinges on anchoring expectations.

Key data underscores the divergence:
- Brazil’s 2025 GDP growth of 2% contrasts with Peru’s 3.1%, highlighting Peru’s fiscal discipline and export-driven economy.
- Brazil’s inflation at 5.53% versus Peru’s 1.28% underscores differing domestic challenges.

UBS’s strategy for investors emphasizes inflation-linked bonds in Brazil to hedge against persistent price pressures and overweighting equities in Peru, leveraging its stronger growth outlook. Both, however, require monitoring global disinflation trends and geopolitical risks. As UBS’s Telo notes, “The next six months will test whether central banks can thread the needle between inflation control and growth support.”

In a world of policy uncertainty, Brazil and Peru’s divergent paths offer both caution and opportunity.