By Marcela Ayres
BRASILIA, March 18 (Reuters) – Brazil’s central bank began a long-awaited easing cycle on Wednesday with a cautious 25-basis-point cut, holding off on explicit guidance for next steps as an oil shock tied to the U.S.-Israeli war on Iran stoked global inflation fears.
The bank’s rate-setting committee, Copom, unanimously voted to lower the benchmark Selic rate to 14.75%, after five straight meetings holding it at 15%, the highest level since July 2006.
Policymakers signaled in January that borrowing costs could start to fall this month, but doubts mounted as the Middle East conflict widened, which Copom cited throughout its decision statement.
Last week, a Reuters poll pointed to a median forecast for a 50-basis-point cut. However, a weekly survey of economists conducted by the central bank showed expectations shifting to a 25-basis-point reduction, also reflected in Brazil’s interest rate curve.
The shift in market bets on the eve of the decision came amid widespread doubts over how long oil prices would stay elevated and the risk of second-round inflation effects in Latin America’s largest economy. Government stimulus and a tight labor market have kept pressure on prices.
Policymakers stressed in their decision statement the importance of “serenity and cautiousness in the conduction of monetary policy, so that future steps of interest rate calibration could incorporate new information about the depth and duration of the conflicts in the Middle East.”
Also on Wednesday, the U.S. Federal Reserve held rates steady and stuck to its projection of a single reduction in borrowing costs this year.
Oil prices jumped above $100 per barrel in recent sessions, roughly 60% more than the level assumed at the Brazilian central bank’s January meeting.
The shock prompted President Luiz Inacio Lula da Silva’s government to announce tax cuts and a direct subsidy for diesel, a key input for Brazil’s road‑centric logistics, a day before state-run oil firm Petrobras raised the fuel’s price.
Surging oil prices also reshaped interest-rate pricing in recent days, prompting Brazil’s Treasury to step in with extraordinary auctions.
The central bank acknowledged that the international environment has grown more uncertain, stressing that risks to its inflation outlook have intensified.
It said the prolonged period of restrictive rates had shown it was slowing down the economy, “creating the conditions under which adjustments to the pace of this calibration, in light of new information, can be made.”
Felipe Tavares, chief economist at BGC Liquidez, called the bank’s communication dovish and forecast a 50-basis-point cut at the next meeting in April.
He noted that the central bank opted to lower rates despite a sharp deterioration in inflation projections, even after incorporating a more favorable exchange-rate path.
Policymakers raised their inflation forecast for this year to 3.9% from 3.4%.
They also lifted projections for the so‑called relevant policy horizon – currently the third quarter of 2027. They lifted their forecast of inflation to 3.3% from 3.2%.
In the 12 months through February, consumer prices in Brazil rose 3.81%.
“We expect a 50-basis-point cut at the April meeting, with a risk of a new 25-basis-point move if there is no easing in the conflict in the Middle East and no pullback in international prices,” said Leonardo Costa, an economist at ASA Investments.
Brazil’s real interest rate remains above 10%, among the highest in major economies.
(Reporting by Marcela Ayres; Editing by Brad Haynes and David Gregorio)
Comments