Copom reduces Selic by 0.25 percentage points to 13.75% per year, fifth consecutive cut
Quick Look
- The Monetary Policy Committee of the Central Bank of Brazil reduced the Selic rate by 0.25 percentage points, from 14% to 13.75% per year, marking the fifth consecutive cut.
- The decision was unanimous and based on the moderation of domestic inflation, although the Copom highlighted external uncertainty due to conflicts in the Middle East and the monetary policy of advanced economies.
AI-generated summary
Why It Matters
The Central Bank of Brazil uses the Selic rate as the main instrument to control inflation. Since the beginning of 2025, the country has adopted the continuous target system, with an inflation objective of 3% and a tolerance between 1.5% and 4.5%. Inflation was above the target for six consecutive months in June, requiring a public letter of explanation from the BC.
The Monetary Policy Committee (Copom) of the Central Bank (BC) decided, this Wednesday (16), to cut the economy's basic interest rate by 0.25 percentage points, reducing the Selic from 14% to 13.75% per year. This is the fifth consecutive rate cut. The decision was unanimous.
🔎 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.
"In relation to the domestic scenario, the set of indicators released since the last meeting shows a gradual moderation of economic activity, mainly in more cyclical sectors, although still at a resilient level, and a heated labor market. In the most recent releases, headline inflation and the average of underlying measures slowed down, remaining below the upper limit of the tolerance range, but still above the target", says the Copom note.
The Copom, however, stated that the external environment remains uncertain due to the uncertainty regarding armed conflicts in the Middle East and the uncertainty regarding monetary policy in some advanced economies.
"Such a scenario requires caution on the part of emerging countries in an environment marked by increased volatility in asset and commodity prices," stated the committee.
How decisions are made
To define interest, 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 goal considering the first quarter of 2028.
For 2026, 2027 and 2028, respectively, financial market inflation estimates are at 4.9%, 4.3% and 3.80% – all above the central inflation target.
PrBanco Central do Brasil — Photo: Jornal Nacional/ Reproduction
Open Questions
- When does the Copom expect inflation to return sustainably to the center of the 3% target?
- What are the specific indicators that led to the unanimous decision to cut interest rates?
- How does the Copom assess the impact of previous cuts on economic activity and employment?
