Between popcorn buckets and the Focus report

CAUSE: We know that election years in Brazil are usually marked by high emotions, and it would be naive to think this year would be any different. Last week, we saw another episode that brought excitement (or rather, volatility) to Brazilian assets, especially the exchange rate. Leaked audio and measures that could increase public spending without a significant revenue offset were just a few of the reasons our exchange rate came under pressure again. Add to this the great uncertainty surrounding the geopolitical context, with the endless back-and-forth regarding the closing and reopening of the vital Strait of Hormuz, and it becomes virtually impossible to make any projection that lasts more than a week. Tough days for economists. Well, this isn't the first time it's happened, and it won't be the last. So, grab your popcorn—the show is just getting started, and it has nothing to do with the upcoming World Cup!

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CONSEQUENCE: So much uncertainty is already being reflected in economic forecasts, and the Central Bank's Focus Report confirms this scenario. In the edition published yesterday, May 18th, the report brought another round of upward revisions to inflation projections: the IPCA projected for 2026 reached 4.92%—the tenth consecutive increase and well above the 4.5% target ceiling. The Selic rate expected for the end of the year also rose from 13% to 13.25%, signaling that the market has begun pricing in higher interest rates for even longer. The dollar, meanwhile, remained stable at a median of R$/US$ 5.20 for 2026—but the number says little in a scenario where a week of political noise or news from the Strait of Hormuz is enough to move the exchange rate significantly. Thus, year-end projections become almost an academic exercise when daily variance rivals the projection itself. Economists appreciate the confidence.

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