Commerzbank’s Michael Pfister expects Brazil’s central bank to begin cutting interest rates after a long period with the key rate held at 15%. Market consensus points to an initial cut at this meeting, with only one vote previously favouring no change.
Pfister says an opening cut could be 25 or 50 basis points, noting that a 50-basis-point move is possible given the level of rates. He adds that a smaller 25-basis-point step could be linked to an oil price shock, while stating that Brazil appears relatively insulated.
He expects room for further cuts and forecasts the pace to increase to at least 50 basis points per meeting over the course of 2026. Commerzbank indicates it expects more, rather than fewer, cuts overall and remains cautious about the Brazilian real’s strength this year.
With the Brazilian central bank poised to begin cutting rates from a high of 15%, we see opportunities in derivatives that profit from falling interest rates and a weaker currency. The main question is not if cuts are coming, but whether the first move tonight will be 25 or 50 basis points. This initial uncertainty presents a chance to trade short-term volatility.
We believe the Brazilian Real is likely to weaken against the US dollar as the easing cycle gets underway. Lower interest rates decrease the appeal of the currency for carry trade strategies. Traders should consider buying call options on the USD/BRL exchange rate to position for a depreciation of the Real over the coming months.
This view is supported by recent data showing that inflation has cooled considerably, with the latest IPCA reading for February 2026 coming in at 4.1%, well below the peaks we saw in mid-2025. Furthermore, sluggish GDP growth of just 0.2% in the final quarter of last year gives the central bank a clear mandate to stimulate the economy. These factors create a strong foundation for a sustained cutting cycle.
Positions in local interest rate markets also look attractive. We anticipate that futures contracts on the DI rate, Brazil’s main interbank rate, will rally as the central bank enacts its cuts. Going long these futures or entering interest rate swaps to receive a fixed rate are direct ways to benefit from the expected decline in borrowing costs.
Looking back at the easing cycle that began in 2023, the BRL initially proved resilient but eventually weakened as the total volume of rate cuts accumulated. We expect a similar pattern now, where the cumulative effect of several cuts will weigh on the currency more than the initial move. The pace of these cuts is expected to pick up later in 2026.
Given the market is already pricing in approximately 400 basis points of cuts by year-end, the key is to position for this broader trend rather than just a single meeting. While the oil price shock last year caused some hesitation, Brazil’s relative energy independence insulates it enough for the central bank to focus on domestic conditions. Therefore, we remain cautious on BRL strength and favor trades positioned for lower rates.
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