Brazil’s central bank policymakers gathered in April, eyes fixed on distant battlefields. The U.S.-Israeli conflict with Iran, now grinding into its fourth month, had already spiked oil prices and frayed global supply lines. Yet they sliced the benchmark Selic rate by a quarter-point to 14.5%, the second such cut in a row. Surprising. Acting economic policy director Paulo Picchetti had flagged greater upside risks to inflation since March. Still, the committee held its ground on a ‘level’ risk balance. Reuters captured the tension in minutes released Tuesday: delays in resolving the Middle East clash boost odds of enduring hits to production and distribution chains.
Longer-term inflation expectations have crept above the 3% target, hitting 3.64% for 2028 in the bank’s weekly Focus survey of private economists. Current-year forecasts? 4.89%. That’s past the 4.5% upper tolerance band. The war’s duration alone may have let some shocks embed. Oil and derivatives supply disruptions threaten second-round effects—wage hikes chasing energy costs, perhaps. ‘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 stated flatly.
Tight policy bites. Credit growth slows. Aggregate demand cools in early 2026. Consumer and producer inflation prints topped forecasts lately, but the board bet the easing cycle endures—for now. Brazil, a net oil exporter via Petrobras, dodges the worst import bill. Even so, derivatives like diesel and gasoline filter through. Petrobras shifted U.S. exports to zero in Q1, routing more crude to China amid the chaos, as Reuters noted last week.
The Strait of Hormuz chokehold looms large. Blocked or attacked, it spells shortages not just in fuel but hydrogen, helium—anything needing oil derivatives. Euro zone firms, per an ECB poll, brace for a 2022-style inflation surge if the war lingers months. Bank of Greece governor Yannis Stournaras called recession fears ‘real and justified,’ citing energy dependence and weaker growth buffers than in 2022. New York Fed’s John Williams pegged the conflict as capable of a ‘larger and broader-based supply shock’ with severe fallout for prices and activity.
Brazil isn’t alone. India’s rupee plumbed record lows on oil drag, prompting dollar-mobilization studies by its central bank. South Korea eyes hikes despite caps on fuel prices. Bundesbank’s Joachim Nagel warns prolonged fighting keeps inflation elevated unless policy tightens. Emerging markets power on—Brazil’s stocks shrug off the war, buoyed by oil exporter status—but central bankers tread warily. Wall Street Journal analysts spotlight Brazil’s resilience among peers less hooked on energy imports. Wall Street Journal.
Back home, fiscal shadows lengthen. Public debt sustainability tops threats in the central bank’s stability survey. Households and firms carry high loads; defaults could spike if growth stalls. Policymakers assume recent data doesn’t derail cuts. But Picchetti’s skew comment lingers. Markets price shallower easing. Selic futures imply pauses if oil stays north of $100.
And if the war drags into summer? Supply chains fracture further. Inflation forecasts climb for an eighth week straight, as X posts from market watchers like @GlobalFlash_Cam highlight. Copom might hike early, squeezing the real and bonds. Tight policy already crimps activity. Second-round effects? The committee vows to fight them. Serenity, though, frays with each Hormuz headline.
Brazil’s path forward hinges on cease-fires half a world away. Rate cuts proceed amid upside risks. Economists revise higher: 4% next year, still shy of target but climbing. The bank gathers data. Uncertainty reigns. Oil shocks test resolve like few domestic forces can.
WebProNews is an iEntry Publication