Brazil's central bank rules out forward guidance as Middle East risks cloud outlook

BRASILIA - Brazil's central bank will not provide forward guidance on monetary policy decisions amid uncertainty stemming from the Middle East conflict, monetary policy director Nilton David said on Tuesday.

After two straight 25-basis-point interest rate cuts to 14.50%, David repeatedly stressed that borrowing costs will remain in restrictive territory until policymakers are confident inflation is converging to the official 3% target.

Headline inflation in Latin America's largest economy has accelerated amid the U.S.-Israel war with Iran, reaching 4.39% in the 12 months through April.

The bank's decision not to provide forward guidance, David said at an event hosted by Santander, reflects its assessment that the conflict has disrupted energy prices and shows no clear end in sight.

"There is going to take some time for energy prices to come back, if they ever come back," he said.

"The central bank is not going to attack any change in prices that may happen because of the conflict. But the central bank is not going to tolerate that it becomes inflation down the road," he added.

David said the central bank is troubled by inflation expectations drifting further from its target, particularly at the longer 2028 horizon, which is typically less sensitive to current shocks.

He added that the economy is no longer growing above potential, and that policymakers want to maintain "serenity" while taking time to assess a broad set of data, including credit conditions and the labor market.

FX INTERVENTIONS

Amid recent central bank actions in the foreign exchange market following a 5% appreciation of the Brazilian real so far this year, David described the bank's moves as aimed at preserving the market's regular functioning.

He said the last actual intervention occurred in 2024, when the central bank stepped in heavily during a depreciation spiral driven by fiscal concerns.

The central bank will intervene in the FX market if it becomes dysfunctional, David said, stressing that the real is a free-floating currency and the bank has no intention of interfering with its price.

(Reporting by Marcela Ayres; Editing by Gabriel Araujo)

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This story was originally published May 19, 2026 at 8:40 AM.