Bank of America projects the Brazilian real will strengthen to 5.25 per U.S. dollar by the end of 2026 and remain at that level through 2027. The bank attributes the anticipated currency appreciation to a combination of strong commodity prices, a relatively high interest-rate carry and an improving political climate.
On the growth front, the bank forecasts Brazil's economy expanding 2% in 2026 and 1.8% in 2027. The 2026 estimate is 20 basis points above consensus, while the 2027 projection is aligned with consensus expectations. Inflation is seen at 4% in 2026, matching consensus, and easing to 3.5% in 2027, a forecast 30 basis points below consensus.
Bank of America expects the policy rate to be 11.75% by the end of 2026 and to fall further to 10.5% by the end of 2027. The 2027 policy-rate forecast sits 325 basis points below the market-implied rate of 13.75%.
The bank highlights Brazil's position as a net oil exporter as an important factor that supports the macro outlook. According to the note, the country currently benefits from stronger terms of trade, a wider oil-trade surplus and higher fiscal revenues. At the same time, Bank of America cautions that Brazil's structural reliance on fuel imports could create inflationary pressures.
Monetary policy has begun to ease: the Central Bank of Brazil initiated its easing cycle with a 25 basis-point cut. Bank of America notes that the central bank recognized ongoing geopolitical conflict as raising uncertainty but did not shift its assessment of upside risks to inflation. Barring a deterioration in external risks, Bank of America expects two successive 50 basis-point cuts at upcoming meetings, bringing the policy rate down to 11.75% by the end of 2026.
Recent inflation readings provide context for the easing case. Headline inflation in February rose 0.70% month-over-month, up from 0.33% in January, largely reflecting seasonal factors. On a year-over-year basis, inflation fell to 3.81% — the first reading below 4% since May 2024. The bank describes underlying inflation dynamics as moderate, which it says supports further monetary easing.
Activity data show mixed signals. GDP increased 2.3% in 2025, with the external sector contributing to strength in the fourth quarter. High-frequency indicators are improving, but Bank of America characterizes the gains as concentrated in pockets of strength rather than indicating broad-based acceleration. The bank therefore expects economic activity to slow in 2026 as monetary policy effects continue to feed through.
On valuation, Bank of America's medium-term Compass BEER model suggests the real is undervalued by 5.3%. In contrast, its long-term Compass FX model indicates the currency is overvalued by 1.8%.
The bank lists several risks that could alter its outlook. Fiscal and policy noise and election-related volatility are singled out as potential sources of disruption. Near-term calendar risks flagged by the note include Central Bank of Brazil meetings on April 29 and June 17, followed by general elections on October 4.
Key takeaways:
- Bank of America forecasts the real at 5.25 per dollar by end-2026 and steady through 2027.
- GDP growth is seen at 2.0% in 2026 and 1.8% in 2027; inflation is projected at 4.0% in 2026 and 3.5% in 2027.
- The bank expects the policy rate to fall to 11.75% by end-2026 and 10.5% by end-2027, contingent on stable external risks.
Sectors likely affected: commodities exporters, energy sector (oil), sovereign fiscal balance and fixed-income markets due to rate trajectory.