Societe Generale’s Dev Ashish forecasts Brazil’s economy will grow below its trend rate in 2026, with tighter policy settings and a weaker external backdrop reducing activity.
Inflation is expected to face pressure from higher oil prices, while softer demand may limit the rise.
The Central Bank of Brazil (BCB) is expected to ease policy cautiously, with larger rate cuts delayed until oil-related inflation pressures fall.
Elections are presented as a factor that could make fiscal consolidation harder to achieve and affect the medium-term fiscal path.
Risks mentioned include changes in global demand, inflation driven by oil prices, and possible fiscal shifts after the election.
The article notes it was produced using an Artificial Intelligence tool and reviewed by an editor.
We are seeing Brazil’s economy slowing down, following the trend from late 2025 when quarterly GDP growth was a sluggish 0.2%. With industrial production figures for February 2026 also showing a decline, traders should consider buying put options on the Ibovespa index futures. This strategy positions for further weakness in the equity market as tight policy continues to bite.
Higher oil prices are a major concern, with Brent crude holding above $95 a barrel through much of March. This is keeping Brazil’s IPCA inflation elevated at an annualized 5.1%, which is well above the central bank’s target. This persistent inflation, driven by external factors, limits the scope for significant monetary easing.
The Central Bank of Brazil is acting with caution, as shown by its recent decision to cut the Selic rate by only 25 basis points instead of a more aggressive 50. This suggests traders could look at yield curve steepener trades using interest rate swaps. Such a position would benefit if long-term rates rise on fiscal fears while the bank slowly cuts short-term rates.
This cautious approach from the central bank is weighing on the Brazilian Real, which we saw weaken past 5.20 against the US dollar last week. Given the uncertainty, buying call options on the USD/BRL currency pair offers a defined-risk way to profit from further potential depreciation of the Real. This move hedges against both slow growth and sticky inflation.
The upcoming general election in October is adding a significant layer of uncertainty, particularly for the country’s fiscal health. We have seen this reflected in rising implied volatility on options contracts expiring in late 2026. Buying straddles on broad market ETFs would be a direct way to trade this expected increase in market turbulence, regardless of the election’s outcome.
