Brazil’s Fiscal Concerns Rise Amid Tariff War Contingency Plan; Analyst Predicts Selic Rate Cut by Year-End (2025)

• Why Is Brazil’s Fiscal Plan Raising Eyebrows?
• Could a Selic Rate Cut Happen in 2025?
• How Are Markets Reacting?
• What’s Next for Investors?
• FAQ

The Brazilian government’s R$30 billion contingency plan to counter U.S. tariffs has sparked fiscal worries, with analysts warning of long-term budget strains. Despite this, slowing inflation and economic deceleration may push the Central Bank to cut the Selic rate as early as December 2025. Meanwhile, global tensions and domestic fiscal uncertainties loom over the real’s stability.

Why Is Brazil’s Fiscal Plan Raising Eyebrows?

The government’s response to the 50% U.S. tariff on Brazilian goods—a R$30 billion credit package for affected companies—has drawn criticism for bypassing established fiscal safeguards. Matheus Spiess, a strategist at Empiricus Research, notes that while the package’s size isn’t alarming, its ad hoc nature undermines confidence. "The fiscal framework allows for shocks, but creating exceptions every time sets a dangerous precedent," he says, citing the prolonged Perse program for the events sector as a cautionary tale. With the 2027 fiscal adjustment looming, each new exception "inflates the bill," Spiess adds.

Could a Selic Rate Cut Happen in 2025?

Despite fiscal headwinds, Spiess believes cooling inflation and economic sluggishness could force the Central Bank’s hand: "A 0.25% cut in December is likely unless U.S. rate cuts delay or fiscal risks escalate." TradingView data shows Brazil’s inflation has eased to 4.2% year-on-year, nearing the 3.5% target band. However, analysts at BTCC caution that global tensions—particularly with the U.S.—could trigger retaliatory measures, complicating the outlook.

How Are Markets Reacting?

The real faces mixed pressures. A weaker dollar globally supports appreciation, but Spiess warns that next year’s budget proposal (due this month) may renew fiscal jitters, deterring foreign inflows. On the corporate front, Q2 2025 earnings from Itaúsa (ITSA4), JBS (JBSS3), and BRF (BRFS3) are in focus, with meatpackers particularly exposed to tariff impacts. "It’s a tug-of-war between macro risks and micro opportunities," observes a BTCC market strategist.

What’s Next for Investors?

Key dates to watch: the August budget release and the Fed’s September meeting. "Brazil’s rate path hinges on whether the U.S. softens its stance," notes Spiess. For now, local bonds offer yield appeal, but fiscal slippage could quickly erase gains. This article does not constitute investment advice.

FAQ

What’s the main concern with Brazil’s tariff response plan?

The R$30 billion package bypasses fiscal safeguards, creating precedents that may worsen long-term budget deficits.

When might Brazil cut interest rates?

Analysts project a 0.25% Selic rate cut in December 2025 if inflation remains controlled and global conditions permit.

How are Brazilian stocks affected?

Exporters like JBS face tariff headwinds, while banks may benefit from rate cuts. Earnings reports this week will clarify sector impacts.