Adriano Machado/ Reuters Last week, most financial market analysts were already projecting a new interest rate cut by the Central Bank this Wednesday (17) — when the Monetary Policy Committee (Copom) meets. After the announcement of the closing of a peace agreement between the United States and Iran, on Sunday night (14), the expectation of a further reduction in the economy's basic rate was consolidated. Currently, the rate is 14.5% per year. The majority of the market projects a cut of 0.25 percentage points, to 14.25% per year. If confirmed, it will be the third consecutive interest reduction. The announcement will be made after 6pm. 🔎The basic rate of the economy is the BC's main instrument to try to contain inflationary pressures, which have effects mainly on the poorest population. Now on g1 ➡️After the reduction of tensions in the Middle East, with the clearing of the Strait of Hormuz, the price of oil already fell at the beginning of this week, which mitigates the upward pressure on fuels and, consequently, inflation. ➡️The result of official inflation in May was also considered positive by analysts, as the increase of 0.58% showed a slowdown in relation to the 0.67% recorded in April. "With IPCA 'less bad' and oil opening the week close to US$80 [with the announcement of the peace agreement], the Copom should cut at this Wednesday's meeting and may leave the statement open. The next steps will depend on the scenario, if the inflection in inflation and expectations for 2027 and 2028 are confirmed without changes, they may still continue to cut 25bps [0.25 percentage points]", assessed the chief economist at Inter bank, Rafaela Vitória. Bruna Centeno, economist at Blue3 Investimentos, noted that the week opened quite intensely with the "widespread relief" in the risk assets part of the peace agreement. According to her, the Brazilian interest curve (in the futures market) already prices a drop in all maturities. "This week is important because this widespread relief marks one of the most awaited weeks, which is exactly this interest pricing in relation to the super Wednesday in Brazil and the United States. Even with the curve closing downwards in all maturities, this cut of 0.25 [percentage point] is still expected for Wednesday", said analyst Bruna Centeno, from Blue3 Investimentos. US and Iran reach peace deal, say Trump and Pakistani prime minister How decisions are made To set interest rates, the Central Bank 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%. 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 goal considering the year 2027 closed. For next year, the financial market estimated, last week, that the IPCA will be at 4.10%, that is, above the central target of 3%. ➡️In the minutes of its last meeting, held at the end of April, the BC reported that the increase in market inflation expectations did not prevent the latest interest rate cut because the "extended period" of maintaining the rate at 15% per year, the highest in 20 years, generated a slowdown in the economy and created conditions for this reduction to be compatible with the reduction in inflation expectations in the coming years. "Maintaining the fundamental commitment to guarantee the convergence of inflation to the target within the relevant horizon for monetary policy, the Committee established that the magnitude and duration of the calibration cycle will be determined over time, as new information is incorporated into its analyses", informed the BC, at that time.