Raphael Ribeiro/BCB The Monetary Policy Committee (Copom) of the Central Bank of Brazil meets this Wednesday (5) and is expected to promote the fourth consecutive cut in the economy's basic interest rate — from 14.25% to 14% per year. This is the expectation of most of the financial market. ?The economy's basic interest rate is the BC's main instrument to try to contain inflationary pressures, which have effects mainly on the poorest population. Confirmed at 14% per year, the Selic will reach the lowest level since March 2025, that is, in just over a year. The Central Bank's announcement will be made after 6pm. Even with the cut, in real terms (discounting projected inflation for the next twelve months), the rate is still one of the highest in the world. For the end of the year, the financial market's bet is that the basic interest rate will remain at 13.75% per year — which implies a new drop in November. The projection of a cut in interest rates is in force despite the resumption of the war in the Middle East, which has increased the price of oil, with the potential to put pressure on Brazilian inflation (via an increase in fuel prices). This Sunday (2), however, North American President Donald Trump promised new rounds of negotiations with Iran. Miriam Leitão: IPCA-15 ensures a drop in interest rates How decisions are made To define interest rates, the institution acts based on the target system. If inflation projections are in line with targets, it is possible to lower interest rates. If they are above, the Copom tends to maintain or increase the Selic. Since the beginning of 2025, with the start of the continuous target system, the objective has been set at 3% and will be considered met if inflation oscillates between 1.5% and 4.5%. With inflation remaining six months in a row above the target in June, the BC had to release a public letter explaining the reasons. When setting the interest rate, the BC looks at the future, that is, at inflation projections, and not at the current price variation, that is, in recent months. This is because changes to the Selic rate take six to 18 months to have a full impact on the economy. At this moment, for example, the institution is already aiming for the target considering the first quarter of 2028. For 2026, 2027 and 2028, respectively, financial market inflation estimates are at 5.03%, 4.22% and 3.80% - all above the central inflation target. Experts comment For the chief economist of C6 Bank, Felipe Salles, the current economic scenario, even with market inflation estimates above the central target in this and the coming years, allows the continuation of the gradual cycle of interest cuts at this Copom meeting, to 14% per year, "but recommends caution in communication and less commitment to future steps of monetary policy". "The Committee must justify the continued calibration of interest rates given the projection of inflation around the target in the relevant horizon. However, expectations of inflation above the target, the heated labor market and the resilience of economic activity still require a contractionary monetary policy. The lack of resolution of the conflict in the Middle East and the very uncertain external environment reinforce the need for additional prudence in the management of interest rates", assessed Felipe Salles, from C6 Bank. Economist Marco Antonio Caruso, from Santander, noted that inflation data in recent months has been favorable. For him, the July IPCA-15 surprised significantly downwards, "presenting a more benign composition and encouraging signs in the core indicators". "The data does not solve the inflation problem, nor does it eliminate the fact that core and services inflation remain above levels compatible with the target. However, they reduce the urgency of a change to a more restrictive stance (hawkish) and reinforce the view that the qualitative deterioration of inflation may have stopped accelerating", concluded Marco Antonio Caruso, from Santander, in a statement.