Brazil Central Bank Says Inflation Won't Return to Double Digits

That backdrop has helped keep Brazilian assets supported. The iShares MSCI Brazil ETF, EWZ, rose to $36.57 on Sept. 1 from $35.76 on Aug. 27, while the Direxion Daily Brazil Bull 2X Shares, BRZU, climbed to $98.24 from $93.95 over the same stretch, with both funds trading above their 50-day moving averages. EWZ’s RSI reached 81.5, a conventional technical indicator that suggests the fund has moved into overbought territory.

Inflation expectations are the key market variable here. Adalytica’s confidence gauge for the Fed’s 2% target is labelled “Extreme Greed,” while its longer-term inflation expectation snapshots sit in neutral territory, suggesting investors are not yet pricing a broad re-acceleration in prices. For Brazil, that helps the BCB argue that inflation should keep converging lower rather than revisiting the 10%+ levels that shook households and fixed-income markets in the past.

The policy message also lands against a fragile macro mix: unemployment has fallen to a period low, but fiscal concerns, political uncertainty ahead of elections and subdued overall growth keep the outlook uneven. That combination leaves local rates, the real and Brazil-focused ETFs sensitive to every signal on inflation persistence, energy prices and the central bank’s tolerance for keeping borrowing costs high.

For investors, the next test is whether incoming price data and wage trends confirm the BCB’s confidence or force markets to reprice the path of rates again. Any renewed jump in oil-linked inflation pressure or a reversal in expectations would likely hit duration-sensitive Brazilian assets first, while a clean disinflation trend could extend the bid in EWZ and BRZU.