Brazil’s Central Bank Holds Steady, Rules Out Selic Cuts Below 13% Through 2026

TL;DR: Brazil’s Central Bank cut the Selic rate from 14.75% to 14.5% but said inflation projections leave no room for rates to fall to 13% by end‑2026. Inflation expectations for 2028 have risen to 3.61% amid Middle East tensions.

The latest policy move came as policymakers tried to balance slowing growth with stubborn price pressures. The Selic is Brazil’s benchmark interest rate, influencing loan costs, savings yields, and the exchange rate.

After the announcement, the Ibovespa index slipped 0.8% and the real weakened 0.5% against the dollar. Petrobras (PETR4.SA) fell 1.2%, trimming its market cap to roughly $85 billion.

For context, the U.S. Federal Reserve’s policy rate sits near 5.25‑5.50%, while Brazil’s inflation target remains 3%. The Central Bank’s projection shows that keeping Selic above 13% is needed to avoid inflation drifting toward 3.5%.

Fact 1: the Bank reduced the Selic from 14.75% to 14.5%. Fact 2: its inflation outlook indicates no space for rates to drop to 13% by the end of 2026. Fact 3: inflation expectations for 2028 rose from 3.5% to 3.61% since the start of the Middle East conflict.

Higher Selic rates raise borrowing costs, which can dampen demand and support the real. A stronger currency helps lower import‑price pressures, feeding back into inflation.

Analysts note that fiscal stimulus and credit expansion are limiting the transmission of monetary policy, making the exchange‑rate channel more important. Inflation expectations will only ease if the Bank’s rate stance stays firm.

Investors should watch the COPOM minutes due Tuesday, upcoming inflation prints, and any shifts in fiscal policy that could alter the Bank’s reaction function.