The return of inflation to the central bank target range and the rise in real rates have cleared the path for the BCB to lower the Selic rate to 12.75%.

The guidance for further policy easing is likely to be maintained for the next two meetings, meaning rates would end the year at 11.75%. 

The path of inflation will determine the speed of future accommodation in 2024, but based on the current conditions, we estimate the policy rate could drop to 8.75% by the end of next year. This erosion of positive carry should put a brake on BRL appreciation. 

Tactically, a return towards the late-July low of 4.70 is on hold unless the real can overcome 4.84.