Tensions surrounding the exchange rate and the El Niño climate phenomenon made the Central Bank (BC) put its foot on the brakes. Unanimously, the Monetary Policy Committee (Copom) maintained the Selic Rate, the economy's basic interest rate, at 13.75% per year.
The decision surprised the financial market, which expected a cut of 0.25 percentage points. However, some institutions were betting on maintaining the rate.
From June 2025 to March 2026, the Selic remained at 15% per year, the highest level in almost 20 years. Since April, the Copom has cut interest rates five times, in a scenario of falling inflation. However, the worsening of the war in the Middle East, the beginning of the El Niño phenomenon and the recent exchange rate instability make the body's work difficult.
The Copom is missing because the mandate of the directors of Organization of the Financial System, Renato Gomes, and of Economic Policy, Diego Guillen, expired at the end of 2025. President Luiz Inácio Lula da Silva has not yet forwarded the nominations for replacements to the National Congress.
Inflation
Selic is the Central Bank's main instrument for keeping official inflation under control, measured by the Broad National Consumer Price Index (IPCA). In October, the IPCA-15, preview of the official index, was 0.32%, benefiting from the drop in electricity bills.
Over the last 12 months, the index rose from 4.5% to 4.62%, above the inflation target ceiling. The Brazilian Institute of Geography and Statistics (IBGE) will release the full IPCA for September on the 12th.
Under the new continuous target system, in force since January 2025, the inflation target that must be pursued by the BC, defined by the National Monetary Council, is 3%, with a tolerance interval of 1.5 percentage points up or down. That is, the lower limit is 1.5% and the upper limit is 4.5%.
In the continuous target model, the target is determined month by month, considering the inflation accumulated over 12 months. In November 2026, inflation since December 2025 is compared with the target and tolerance range. In December 2026, the procedure is repeated, with calculation starting in January 2026. In this way, the verification moves over time, no longer being restricted to the closed index for December of each year.
In the latest Monetary Policy Report, released at the end of September by the Central Bank, the monetary authority maintained the IPCA forecast for 2026 at 5.2%, but the estimate will be revised due to the recent drop in inflation. The next edition of the document will be released at the end of this month.
Market forecasts are in line with those of the monetary authority. According to the Focus bulletin, a weekly survey of financial institutions released by the BC, official inflation is expected to close the year at 5.22%, above the target ceiling of 4.5%. Before the start of the war in the Middle East, market estimates were at 3.95%.
Less expensive credit
The reduction in the Selic rate boosts the economy. This is because lower interest rates make credit cheaper and stimulate production and consumption. On the other hand, lower rates make it more difficult to control inflation. In the latest Monetary Policy Report, the Central Bank reduced the economic growth forecast for 2026 to 1.8%.
The market projects slightly lower growth. According to the latest edition of the Focus bulletin, economic analysts predict GDP expansion of 1.76% in 2026. Four weeks ago, the estimate was 1.85%
The basic interest rate is used in public bond negotiations in the Special Settlement and Custody System (Selic) and serves as a reference for other interest rates in the economy. By readjusting it upwards, the Central Bank holds back the excess demand that puts pressure on prices, because higher interest rates make credit more expensive and encourage savings.
By reducing basic interest rates, the Copom makes credit cheaper and encourages production and consumption, but weakens inflation control. To cut the Selic, the monetary authority needs to be sure that prices are under control and are not at risk of rising.
