Peace agreement between the US and Iran reinforces expectations of a new interest rate cut by the Central Bank this Wednesday

Adriano Machado/ Reuters
Most financial market analysts were already projecting, last week, a new interest rate cut by the Central Bank this Wednesday (17th) - when the Monetary Policy Committee (Copom) meets. is at 14.5% per year. The majority of the market projects a cut of 0.25 percentage points, to 14.25% per year. If confirmed, it will be the third consecutive interest reduction. The announcement will be made after 6pm.
The basic economic rate is the BC's main instrument to try to contain inflationary pressures, which have effects, mainly, on the poorest population.
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➡After the reduction of tensions in the Middle East, with the clearing of the Strait of Hormuz, the price of oil already fell at the beginning of this week, which mitigates the upward pressure on fuels and, consequently, on inflation.
➡The result of official inflation in May was also considered positive by analysts, since the increase of 0.58% showed a slowdown in relation to the 0.67% recorded in April.
"With IPCA 'less bad' and oil opening the week close to US$ 80 [with the announcement of the peace agreement], the Copom should cut back at this Wednesday's meeting and may leave the statement open. The next steps will depend on the scenario, whether the inflection in inflation is confirmed and expectations for 2027 and 2028 without changes, could still continue to cut 25bps [0.25 percentage points]", said the chief economist at Inter bank, Rafaela Vitória.
Bruna Centeno, economist at Blue3 Investimentos, observed that the week opened quite intensely with the "widespread relief" in the risk assets part of the peace agreement. According to her, the Brazilian interest rate curve (in the futures market) is already pricing a drop in all maturities.
"This week is important because this widespread relief marks one of the most awaited weeks, which is exactly this interest pricing in relation to the super Wednesday in Brazil and the United States. Even with the curve closing in a fall in all maturities, this cut of 0.25 [percentage point] is still expected for Wednesday", said analyst Bruna Centeno, from Blue3 Investments.
USA and Iran reach peace agreement, say Trump and Pakistani prime minister
How decisions are made
To set interest rates, the Central Bank acts based on the target system. If inflation projections are in line with targets, it is possible to lower interest rates. If they are above, the Copom tends to maintain or increase the Selic.
Since the beginning of 2025, with the beginning of the continuous target system, the objective has been set at 3% and will be considered met if inflation oscillates between 1.5% and 4.5%.
When setting the interest rate, the BC looks to the future, that is, to inflation projections, and not to the current price variation, that is, in recent months.
This occurs because changes in the Selic rate take six to 18 months to have a full impact on the economy.
Right now, for example, the institution is already aiming for the target considering the year 2027 closed.
For next year, the financial market estimated, last week, that the IPCA will be at 4.10%, that is, above the central target of 3%.
➡In the minutes of its last meeting, held at the end of April, the BC reported that the increase in market inflation expectations did not prevent the latest interest rate cut because the "prolonged period" of maintaining the rate at 15% per year, the highest in 20 years, generated a slowdown in the economy and created conditions for this reduction to be compatible with the reduction in inflation expectations in the coming years. over time, as new information is incorporated into its analyses", informed the BC, at that time.

Source: G1