That is the expectation of the vast majority of the 122 market participants, including banks, asset managers, and consultancies, surveyed by Valor less than a week before the committee’s next decision.

In all, 114 firms expect the Selic to end this month at 14.5%, while five expect rates to remain at the current level and only two believe a larger, 50-basis-point cut would be more appropriate.

With no signs that the war involving the United States, Israel, Iran, and Lebanon will end soon, oil prices have remained around $100 a barrel for most of the period since COPOM’s last meeting, on March 18.

As a result, the market’s inflation outlook has worsened, and the Central Bank’s Focus survey now points to the IPCA, Brazil’s benchmark inflation index, above the upper limit of the target range in 2026 and, for next year, inflation well above the 3% pursued by the monetary authority.

Even so, the near-unanimous expectation is that COPOM still has room to “calibrate” the degree of monetary tightening, as the committee puts it, since the current Selic level is significantly weighing on economic activity.

Speeding up cuts

Morgan Stanley’s chief Brazil economist, Ana Madeira, maintains a more dovish view than the market consensus. She expects the Central Bank to cut the Selic by 25 basis points this week, but says it could speed up the pace in June and take the benchmark rate to 12% by the end of the year.

That view was formed after observing that, despite the volatility that followed the outbreak of the Middle East conflict, the Central Bank continued to signal that it intended to keep cutting rates and planned to calibrate rates that, by the end of the cycle, would remain restrictive.

“This expectation is based, in part, on some improvement in the external scenario, especially in oil prices. But, of course, if there is no easing on the geopolitical front and oil remains under pressure, we acknowledge it will be difficult for the Central Bank to have a solid enough argument to explain an acceleration in the pace of cuts,” she said.

For Madeira, however, the slowdown in the economy continues to point to the need to calibrate the degree of restrictiveness in monetary policy.

“An acceleration to 50 basis points depends on the international scenario, but the 25-basis-point pace can continue, especially when we look at the domestic backdrop,” Madeira said, even though she sees the inflation outlook as a concern.

Morgan Stanley raised its IPCA forecast for this year to 4.5% from 3.9% and kept its 2027 estimate at 3.6%.

As for communication, Madeira believes Wednesday’s decision is likely to resemble the statement issued in March in tone. Some changes, however, are expected, particularly in the balance of risks. She expects the balance to become asymmetric, with upside risks to inflation.

“But in terms of guidance, I believe the Central Bank will continue to suggest that calibration should continue ahead, without committing to any pace of cuts.”

Key communication

Amid the uncertainty created by the war, COPOM’s communication will be crucial to understanding its next steps, said Fabiano Soares dos Santos, investment director at Funpresp, Brazil’s pension fund for federal civil servants.

“We know market volatility has increased a lot and that, in March, at the COPOM meeting, the conflict in the Middle East was still very recent and there was still no measure of the impacts. Looking at it now, the Central Bank still does not have the necessary requirements to change monetary policy, and the market still believes in the downward trend for the Selic, even though there is more uncertainty,” Soares said. He expects a 25-basis-point cut this week and a Selic of 12.5% at the end of 2026.

Luis Cezario, chief economist at Asset 1, does not expect significant changes in COPOM’s communication. Even on the balance of risks, while he sees some upside asymmetry in the inflation outlook today, he said it is unclear whether the committee will have enough consensus to change its assessment from “symmetric.”

In any case, Cezario is aligned with the market consensus in seeing a 25-basis-point Selic cut as the most likely decision, without a clear indication of what COPOM will do next. “My impression is that the tone will remain similar to the previous statement: it will signal that there is room to keep cutting, but avoid giving clear guidance on the pace,” he said.

He highlighted remarks by COPOM members suggesting there is some “cushion” in interest rates after the tightening process that took the Selic to 15% last year.

“It seems to us that, to signal any move toward stopping the cycle, there would need to be a very sharp deterioration in the scenario,” Cezario said. “They have a budget for cuts, smaller than before, but there is still some room,” added the economist, who expects the Selic to end this year at 12.5%.

Slower path

With a more conservative view, Daniel Xavier, chief economist at Banco ABC Brasil, expects COPOM to keep cutting the Selic by 25 basis points until the end of 2026, which would take the benchmark rate to 13.25%, slightly above the market’s median forecast of 13%.

“It will deliver the 25-basis-point [cut], reaffirm that it is watching the conflict and its effects, while reinforcing that it is coming from a long period of restrictive rates. It will be the continuation of the cycle in a cautious and serene way,” Xavier said, repeating terms used by COPOM itself in the statement after its March decision.

The economist expects COPOM to keep the balance of risks symmetric, because he believes it would be “contradictory” to cut rates while flagging upside risks to inflation. He also expects the inflation forecast for the relevant monetary-policy horizon to be reduced to 3.1% from 3.3%.

Xavier said the shift in the horizon from the third to the fourth quarter of 2027, the recent appreciation of the real, and a higher Selic projected in the Focus survey will be enough to offset the impact of higher oil prices on the Central Bank’s model forecast.

Asset 1’s calculation points to a different result, Cezario said. “Our forecast is between 3.3% and 3.4%. Since there will probably be a further worsening in inflation expectations on Monday [27], it seems more likely to us that the projection will rise to 3.4%,” he said.

Gino Olivares, chief economist at Azimut Brasil Wealth Management, challenges the idea that the Selic has a cushion that allows the Central Bank to keep cutting in light of the change in the inflation outlook after the outbreak of the war.

“What I see now is that the plane is not landing, but going around. At this point, there is no way to know how high the plane will climb in that go-around. So neither I nor the Central Bank know how much of the room that existed to lower interest rates remained after this move,” he said.

Olivares acknowledges, however, that continuing the rate-cutting cycle at a 25-basis-point pace or pausing while waiting for more information are strategies with similar effects, since the current level of monetary-policy restriction is high.

The economist draws attention to the fact that inflation is likely to keep rising over the next three months. And while current inflation rises, expectations are unlikely to fall. “We will live with inflation under pressure, and it will only ease with numbers well below expectations, which should not happen anytime soon.”

Potential pause

For COPOM, the path of least resistance, Olivares said, should be to keep cutting rates, but with a message that the possibility of a pause has become real. “The chance of stopping is real. It is definitely not zero. Perhaps that is the most important message Copom COPOM to convey, and the hardest one to put into words,” he noted.

For Société Générale economists, that should in fact be the baseline scenario. Given uncertainty in the Middle East, rising inflation expectations, and mixed signals from the domestic economy, COPOM should keep the Selic at 14.75% on Wednesday, the French bank argued in a report.