BRASILIA, May 5 (Reuters) – The Brazilian central bank considered changing its view on inflation risk balance but ultimately maintained a level outlook despite the U.S.-Israeli war on Iran already raising inflation expectations, it said on Tuesday.
The bank cut interest rates last week by 25 basis points for a second straight meeting to 14.5%, surprising some observers with the unchanged view on risk balance despite acting economic policy director Paulo Picchetti having said that he considered inflation risk to be more skewed than at the time of the March meeting.
In minutes from the April policy meeting, policymakers said that delays in resolving the Middle East conflict increase the likelihood of more lasting impact on production and distribution chains.
However, they added that the duration of the conflict so far may have been sufficient for some risks to materialize, most notably raising longer-term inflation expectations from the official 3% target, particularly for 2028.
Private economists surveyed weekly by the central bank now forecast inflation at 4.89% this year, 4% next year and 3.64% in 2028.
“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,” the minutes said.
Policymakers said they had assumed that recent developments did not derail the easing cycle despite inflation data for consumers and producers coming in above expectations.
They added that tight monetary policy continues to weigh on activity in early 2026, with slower credit growth constraining aggregate demand.
(Reporting by Marcela AyresEditing by Gabriel Araujo and David Goodman)
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