MNI INTERVIEW: BCB To Cut Twice To 14%, Iran Key - Le Grazie

The Central Bank of Brazil is likely to make two 25-basis-point cuts by August to take its Selic rate to 14% and will then decide on its next steps depending on what the data shows of the effects on inflation of the war in Iran, former deputy governor for monetary policy Reinaldo Le Grazie told MNI.

“We will probably see two more 25bps cuts and reach August with a rate of 14%, at which point Copom should assess what to do next, with an additional 90 days to assess the situation,” Le Grazie, now a partner at fund manager Panamby Capital, said in an interview, in which he noted that Brazilian rates remain at very restrictive levels.

The BCB on Wednesday cut the Selic rate for a second time by 25 basis points to 14.50%, and reaffirmed its "serenity and cautiousness” as it considers incoming information about the depth and duration of the disruption caused by the war.

"The last decision was fully dominated by the conflicts in the Middle East. Not only the Copom, but all monetary policy committees have been reporting the same outlook," Le Grazie said.

Copom’s inflation projections pointed to a smaller-than-anticipated cycle, according to the former deputy governor, though he noted that the inflation outlook depends on the impact of the war in Iran. The BCB has a 3% inflation target, but with a tolerance band of 1.5 percentage points in either direction. (See MNI BCB WATCH: Cautious Cut While Inflation Forecasts Rise)

STATEMENT

"The hawkish part of the statement was the upward revision of inflation forecasts,” Le Grazie said. “In the relevant horizon (Q4 2027), it stood at 3.5%." 

The statement however also contained a dovish aspect in that its description of the economy was little altered from its March iteration, despite the worsening outlook, he said.

 "I think it was very similar to the previous statement, which sounds mild, especially for those expecting a more realistic reading,” Le Grazie said, adding that, while the monetary policy committee did not say so explicitly, it will be data-dependent for the next meetings.

"They are completely data-dependent in a scenario heavily dominated by the conflict and, secondarily and increasingly, by the election in Brazil," he said.

Also key was how Copom noted that while economic activity was stronger in the first quarter of this year, overall in 2026 it appears to have slowed, Le Grazie said, adding that he agreed with this assessment. Copom pointed to some labor market cooling and a challenging credit market.

Even though the outlook has become more complicated, interest rates in Brazil remain very restrictive, creating difficulties for companies to finance themselves, according to Le Grazie.