Brazil’s prospective sequence of interest rate reductions may be more compressed than currently projected if the ongoing conflict involving Iran continues to push global oil prices higher, Treasury Secretary Rogerio Ceron said on Monday. He emphasized that, despite that risk, he does not expect any change to the central bank’s imminent policy plan ahead of its March 17-18 meeting, where officials have signaled the start of monetary easing.
The central bank halted a period of aggressive tightening in July of last year and has maintained its benchmark Selic rate at 15%, a nearly 20-year high. The pause has been aimed at driving inflation, which stood at 4.1% in February, down toward the central bank’s 3% objective.
Ceron told attendees at an event hosted by the newspaper Valor Economico that the recent strength of the Brazilian real has helped blunt inflationary pressure stemming from higher oil prices following attacks by the United States and Israel on Iran. "I don’t believe there will be any change to the scenario outlined by the central bank," he said. He added: "What could happen down the road is that the pause (in rate cuts) comes earlier, if this uncertainty and the pass-through to prices start to intensify."
Prior to the conflict, economists surveyed weekly by Brazil’s central bank had anticipated seven rate cuts in 2026, with the Selic rate projected to end that year at 12%.
Positive fiscal effects from higher oil
Ceron highlighted that rising oil prices produce favorable outcomes for Brazil’s public finances because they elevate government receipts from oil royalties and dividends paid by state-run energy company Petrobras. Oil is Brazil’s principal export, and the Treasury secretary said similar dynamics were observed between 2022 and 2023 after Russia’s invasion of Ukraine.
For the current fiscal year, the budget incorporates an expectation of 30 billion reais in revenue from auctions of stakes in oil fields. Ceron noted that this figure could increase if crude prices move higher. The budget was drafted on an assumption of an average oil price of around $65 per barrel.
On Monday, Brent crude was trading above $79 per barrel, and market participants were assessing how the escalating conflict in the Middle East could affect flows through the Strait of Hormuz - a shipping lane that handles more than 20% of global oil shipments. Those assessments supported expectations for sustained elevated prices in the near term.
Ceron said that oil priced up to $85 per barrel produces positive fiscal effects, but he warned that prices above $100 per barrel "start to create real inflationary pressure and trigger other repercussions."
For reference, market conversion at the time of his comments was $1 = 5.2031 reais.
The Treasury secretary’s remarks underscored a balance facing policymakers: higher crude can shore up public revenues while also posing a risk to the inflation path that the central bank is trying to control. While Ceron judged the near-term policy scenario unchanged, he left open the possibility that a sustained spike in oil prices tied to the conflict could accelerate the end of any anticipated easing cycle.