High Tide

BRAZIL ECONOMICS - Report 27 Jul 2026 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

Brazilian long-term real interest rates remain high, and a significant share of the recent increase originates from external factors. There is a stable long-run relationship between Brazilian and U.S. interest rates, with the latter having risen substantially since 2022. The interest rate spread between the two countries remains close to its average since 2009 despite Brazil's significantly weakened fiscal outlook, suggesting that fiscal risks are not yet fully priced in. In the absence of credible signs of fiscal consolidation, and with a considerable probability of President Lula's re-election—implying continuity of the current economic policy—we see room for additional upward pressure on long-term interest rates.

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