Brazil Central Bank Makes Cautious 25-Bp Cut After Oil Shock

• Brazil's central bank began a long-awaited easing cycle on Wednesday, March 18, 2026, with a cautious 25-basis-point cut, while 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 had signalled in January 2026 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. The central bank acknowledged that the international environment has grown more uncertain and stressed that risks to its inflation outlook have intensified.
• Oil prices jumped above $100/bbl 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.
• 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." The central bank also noted that 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." Brazil's real interest rate remains above 10%, among the highest in major economies.
• 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 favourable exchange-rate path. Policymakers raised their inflation forecast for this year to 3.9% from 3.4%.

(Source: Reuters)