By Marcela Ayres
BRASILIA, March 2 (Reuters) – Brazil’s upcoming interest rate cutting cycle could prove shorter than currently expected if the conflict in Iran drags on and exerts stronger upward pressure on oil prices, Treasury Secretary Rogerio Ceron said on Monday.
He stressed, however, that he sees no change to the central bank’s plan for this month, after policymakers signaled the start of monetary easing at their next policy meeting on March 17-18.
The central bank halted an aggressive tightening cycle in July last year and has since kept its benchmark Selic rate at a nearly 20-year high of 15% in a bid to steer inflation – 4.1% in February – down toward its 3% target.
Ceron said the near-term outlook remains unchanged, as the recent strengthening of the Brazilian real helped offset inflationary pressures stemming from higher oil prices after the United States and Israel launched attacks on Iran.
“I don’t believe there will be any change to the scenario outlined by the central bank,” he told an event hosted by the newspaper Valor Economico.
“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.”
Before the conflict, economists polled on a weekly basis by Brazil’s central bank had forecast seven rate cuts in 2026, with the Selic rate seen ending the year at 12%.
POSITIVE MACRO IMPACTS
Ceron noted that higher oil prices have positive effects on Brazil’s public accounts, as they boost government revenue from oil royalties and dividends paid by state-run oil giant Petrobras.
Oil is Brazil’s main export item. Ceron recalled that a similar dynamic played out between 2022 and 2023, after Russia’s invasion of Ukraine.
The Treasury secretary said this year’s budget includes a forecast of 30 billion reais ($5.77 billion) in revenue from auctions of stakes in oil fields, a figure that could increase amid higher crude prices.
The budget was drafted based on an average oil price of around $65 per barrel.
On Monday, however, Brent crude was trading above $79, with many analysts expecting prices to remain elevated in the coming days as markets assess the impact of escalating conflict in the Middle East on supplies through the Strait of Hormuz, a route for more than 20% of global oil shipments.
Ceron said oil at up to $85 a barrel has positive fiscal effects, but warned that prices above $100 “start to create real inflationary pressure and trigger other repercussions.”
($1 = 5.2031 reais)
(Reporting by Marcela Ayres; Editing by Gabriel Araujo, Kevin Liffey and Andrea Ricci )
