Brazil Markets Digest Softer Inflation Outlook as IGP-M Ends 2025 in Deflation

Overview

• Central bank Focus survey trimmed IPCA forecasts to 4.32% for 2025 and 4.05% for 2026, with GDP projections steady at 2.26% in 2025 and 1.80% in 2026.
• Markets continue to price a Selic of 12.25% at end‑2026 after 2025 closed at 15%, reinforcing tight financial conditions despite easing inflation expectations.
• FGV reported IGP‑M at −0.01% in December and −1.05% for 2025, while industry confidence rose to 92.9 and capacity use slipped to 79.6%.
• The real weakened with the dollar near R$5.57–R$5.58, the Ibovespa hovered around 160,000 with a slight decline, and trading volumes stayed thin.
• Interest‑rate futures split with short maturities up and the long end lower, as investors awaited Fed minutes and Brazil’s Caged and Pnad labor readings, with some commentary highlighting 2026 risks from a slower China and a potential AI investment reset.