By Isabel Teles and Bernardo Caram
SAO PAULO, April 29 (Reuters) – Brazil’s central bank cut interest rates by 25 basis points on Wednesday for a second straight meeting, leaving its next moves open as it sizes up the economic effects of the U.S.-Israel war against Iran.
The central bank’s rate-setting committee, called Copom, voted unanimously to lower its benchmark Selic rate to 14.50%, in line with the expectations of 31 out of 35 economists surveyed by Reuters.
Policymakers, who started the easing cycle with an initial 25-basis-point cut in March, reiterated the need for serenity and caution in the conduct of monetary policy.
“Future steps of interest-rate calibration can incorporate new information about the depth and duration of the conflicts in the Middle East,” they wrote in their policy decision.
Brazil’s central bankers said an extremely restrictive policy stance had given them margin to ease policy. They had held the Selic rate at a nearly 20‑year high since last July, among the world’s highest real interest rates, in an effort to bring inflation to the 3% target, with a tolerance of plus or minus 1.5 percentage points.
Since their March meeting, the Brazilian real has strengthened, partly supported by the wide interest rate differential with advanced economies, helping to curb inflation pressures by making imports cheaper.
Still, policymakers seemed to acknowledge that a prolonged U.S.-Iran conflict could cut short the rate-cutting cycle.
ASA economist Leonardo Costa flagged a change to their policy statement that said “adjustments to the pace and extension” of the easing cycle would depend on new information. The March statement had only cited “adjustments to the pace.”
Costa said he took that as a signal that not only the speed but also the size of the cycle will depend on the Iran conflict.
Market inflation expectations, which were above target when rate cuts began, have only widened since last month.
Despite the softer‑than‑expected reading through mid‑April, inflation remains a challenge for policymakers, as 12-month price increases accelerated to 4.37% from 3.90% a month earlier.
The pickup, driven in part by higher transportation and food costs, highlights persistent underlying pressures even as inflation stays within the central bank’s tolerance range.
On Wednesday, the central bank raised its 2027 inflation forecast, the current relevant horizon for monetary policy, to 3.5% from 3.3% in its March monetary policy report.
For this year, it raised its projection to 4.6% from 3.9%.
Earlier on Wednesday, the U.S. Federal Reserve decided to keep interest rates unchanged and noted rising concerns about inflation.
Rafaela Vitoria, chief economist at Banco Inter, said Brazil still has plenty of room to cut rates, forecasting more cuts of a quarter percentage point before accelerating to 50-basis-point cuts later this year.
“Monetary policy remains quite restrictive even with these relatively modest 25‑basis‑point cuts, so demand should not recover significantly,” she said, adding that the pass-through of higher oil costs may be more limited than in 2022.
(Reporting by Isabel Teles and Bernardo Caram; Editing by Brad Haynes and Neil Fullick)
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