Brazil's central bank is widely expected to lower its key interest rate for a fourth meeting in a row when it convenes on August 5, according to a poll of financial analysts. The expected move would be another quarter-point reduction to 14.00%, continuing a measured easing cycle that began earlier this year.
Respondents to the poll - 38 of 42 analysts surveyed between July 27 and 31 - forecast that the central bank's monetary policy committee, Copom, will shave 0.25 percentage point off the Selic at the upcoming meeting. Four analysts in the sample expected the rate to remain at 14.25%.
Copom has already reduced the Selic from a near-two-decade high of 15.00% with three quarter-point cuts since the start of the year, bringing the rate to its current 14.25% level. The committee has adopted a small-step approach to easing policy, a pattern that analysts judge is likely to persist at Wednesday's meeting as officials balance modest expansion in the economy with lingering price pressures.
Analysts noted the central bank is confronting an environment in which inflation remains above target and expectations for longer horizons have become less anchored, making rapid rate cuts inadvisable. The poll showed that, on a quarterly-horizon basis, the median view of the 38 respondents who provided quarterly projections was for the central bank to hold the Selic at 14.00% until the start of 2027. The median then assumes a gradual resumption of easing after the inauguration in January of the government that will be elected in October's presidential vote.
When asked a separate question about the very next Copom decision beyond August, responses were more mixed. Of 32 respondents to that extra query, 15 expected a fifth consecutive 25-basis-point cut in September. Seven saw the next reduction arriving in January, while the remaining respondents anticipated easing in other months.
Market commentators and bank economists provided context for these projections. Julio Cesar Barros, an economist at Banco Daycoval, said he anticipated the central bank's policy statement would refrain from offering significant directional guidance after a prior reference to 2028 inflation trends prompted market confusion in June. "They will try to be as concise as possible in the communication of this meeting, characterizing an economy that continues to show a resilient labour market, inflation still above target, and unanchored expectations," he added.
Myria Bast, deputy chief economist at Banco Bradesco, argued that another cut in September would be warranted given recent improvements in the inflation outlook. She pointed to the waning impact of the initial oil price shock stemming from the U.S.-Israeli war with Iran as a factor helping to ease price pressures. "Since the last Copom meeting, the data have come in better ... the effects of (tight) monetary policy are becoming apparent, with growth moderating and inflation dissipating," she said.
Not all analysts were convinced the central bank should continue to ease soon. Citi economists flagged several reasons the Selic might remain unchanged at the upcoming meeting. They highlighted further de-anchoring in inflation expectations for longer horizons, the prospect of fiscal expansion ahead of October's presidential vote, and resilient economic activity as reasons for caution.
"Our call is based on the worrisome dynamic of inflation expectations, which continue to de-anchor from the 3.0% target for longer horizons - 2027-2028 - despite the recent lower-than-expected inflation prints," Citi wrote in a report, noting these considerations underpin a more restrained near-term policy stance.
Overall, the poll and analysts' remarks portray a central bank attempting to navigate a narrow path: easing policy slowly while guarding against the risk that inflation and its long-term expectations could drift higher. That balancing act, combined with limited fiscal space due to high borrowing costs for the government, helps explain why Copom's communication is likely to be cautious and succinct at this juncture.
Contextual note - The Selic rate has been lowered in three quarter-point moves this year, from 15.00% to 14.25%, and the most recent consensus expects a further quarter-point cut to 14.00% on August 5.