Will the Bank of Brazil decrease the target for the Selic rate by 25 bps at the August meeting?

Prediction markets put the probability at 79%: Will the Bank of Brazil decrease the target for the Selic rate by 25 bps at the August meeting. Currently, markets see this as likely (79% YES). A July rate hike from the Fed? Chances that the Federal Reserve will hike rates at its July meeting are rising.

What’s Happening

Traders are increasingly pricing in a high probability that the Bank of Brazil will decrease the target for the Selic rate by 25 bps at the August meeting, with current market odds standing at 79% in favor of a cut. This dovish expectation comes despite a complex global backdrop, as the Federal Reserve faces rising odds of a rate hike at its July 29 meeting, with the CME's FedWatch tool estimating a 46.5% chance of a 25-basis-point increase. The divergence in monetary policy paths highlights the Bank of Brazil's focus on domestic inflation dynamics, which appear more subdued compared to the inflationary pressures driving hawkish bets in the United States, particularly amid surging oil prices linked to the Middle East conflict. [CNBC, Jul 13]

The market's conviction that the Bank of Brazil will decrease the target for the Selic rate by 25 bps at the August meeting is reinforced by a broader global trend of cautious central bank communication. The International Monetary Fund recently stated it hopes to engage with central banks on changes to forward guidance, emphasizing the need for clear communication in uncertain times. Meanwhile, the Bank of Canada is expected to hold rates steady at 2.25% through 2026 as inflation risks appear contained, according to a Reuters poll. This contrasts with the Federal Reserve, whose July 8 meeting minutes revealed a split among officials on the direction of rates, with policymakers entertaining scenarios in either direction, though the committee ultimately voted to hold the funds rate at 3.5%-3.75%. [Kitco, Jul 8]

Looking ahead, the decision on whether the Bank of Brazil will decrease the target for the Selic rate by 25 bps at the August meeting will depend heavily on incoming domestic inflation data and the evolution of external risks. The U.S. dollar has jumped against most peers following renewed Middle East attacks and the closure of the Hormuz Strait, which has driven oil prices higher and fanned global inflation fears. Fed funds futures are now pricing an implied 52.1% probability of two or more rate hikes by the December meeting, a scenario that could complicate the Bank of Brazil's easing cycle by potentially weakening the real. Market participants will closely watch the central bank's commentary for any shifts in forward guidance that could alter the current 79% probability of a cut. [Global Banking & Finance Review, Jul 13]

Traded on Polymarket — $50K Volume

Lower-volume market on Polymarket ($50K). Wider spreads expected — enter with limit orders and be aware of slippage risk. Currently 79c YES.