BRASILIA, May 5 - The Central Bank of Brazil considered revising its view on the balance of inflation risks at its April meeting but decided to maintain a level assessment despite signs that the U.S.-Israeli war on Iran has already nudged inflation expectations upward.
Last week the bank reduced its benchmark interest rate by 25 basis points for the second straight meeting, bringing the Selic rate to 14.5%. The decision surprised some observers because the minutes record that acting economic policy director Paulo Picchetti had signaled he viewed inflation risks as more skewed than at the time of the March meeting.
Minutes from the April policy session emphasize that delays in resolving the conflict in the Middle East raise the probability that effects on production and distribution chains will persist. The document notes that the length of the conflict so far may already have allowed some risks to materialize, most notably in the form of higher longer-term inflation expectations versus the central bank's official 3% target, with particular concern for expectations for 2028.
Private-sector economists surveyed weekly by the central bank now project inflation at 4.89% for this year, 4.00% next year and 3.64% in 2028. Those figures were cited in the minutes as part of the context informing the committee's deliberations.
The minutes also record the committee's commitment to resisting second-round effects from what it described as an "oil and derivatives supply shock," while exercising caution and collecting further information as uncertainty remains elevated. The exact language in the minutes states: "In this context, the committee reaffirms its commitment to combating second-round effects of the oil and derivatives supply shock, while maintaining serenity to gather additional information over time, amid a scenario of heightened uncertainty."
Policymakers said they had proceeded on the assumption that recent geopolitical developments did not derail the ongoing easing cycle, despite consumer and producer inflation data arriving above expectations. At the same time, they noted that a still-tight monetary stance continues to act as a drag on activity heading into early 2026, with slower growth in credit available to the economy constraining aggregate demand.
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