Brazil's benchmark interest rate, the Selic, fell to 13.75% a year on Wednesday (16), the fifth cut in a row by the Copom, the committee that sets the cost of money at the country's central bank. For household budgets the relief is still thin: loan installments remain expensive, and savings accounts now yield a little less. The bank's next step has become the most uncertain call of the year, with inflation close to the ceiling of the official target and the economy losing steam.
The 0.25 percentage point cut, approved unanimously, was expected by financial markets. The Selic has left behind its peak of 15%, held from June 2025 to March this year, the highest level in almost 20 years. The committee is short-handed: the terms of directors Renato Gomes and Diego Guillen expired at the end of 2025, and President Luiz Inácio Lula da Silva has yet to send replacements to Congress.
Inflation eased in August, but the target ceiling is close
The official consumer price index, the IPCA, fell 0.32% in August, the largest monthly deflation in four years, helped by a one-off Itaipu bonus credited on electricity bills. On a R$ 500 grocery basket, that drop is worth about R$ 1.60 in the month. Food prices also fell 0.34%.
Over 12 months the IPCA has slowed to 4.22%, below the 4.5% ceiling of Brazil's inflation target, but far above the 3% midpoint: a cart that cost R$ 500 a year ago costs about R$ 521 today. Markets are not relaxed about 2026: the Focus survey, a weekly central bank poll of analysts, projects year-end inflation of 4.9%, above the ceiling. Before the war in the Middle East the estimate was 3.95%, and the bank's own June report went as high as 5.2%.
In short: the Selic is the central bank's main tool to hold down prices. High rates make credit expensive and cool consumption, which slows inflation; cuts do the opposite. The dilemma now is to calibrate further cuts to support a weak economy without reigniting inflation that already runs near the ceiling.
Signs of weakness are piling up: GDP fell 0.4% in July and 1% in June by FGV's monthly monitor, and is up only 1.8% over 12 months, down from 2.2% through June. Household consumption grew 0.4% in the quarter through July, the slowest pace since October 2025. Analysts in the Focus survey cut their 2026 growth forecast to 1.89%, less than half the 4.9% inflation they expect this year.
"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 have decelerated, remaining below the upper limit of the tolerance band, yet still above the target."
The next step runs through the October election
In its statement, the committee said uncertainty around the war in the Middle East and around monetary policy in advanced economies "requires caution on the part of emerging countries". Even so, the bank has not signaled any intention to stop cutting, says Silvia Ludmer, chief economist at Andbank Brasil. She describes a "calibration cycle", the most conservative and gradual since at least 2003: "it is moving very slowly".
The October presidential election has entered the risk math. If the result puts pressure on the currency, the bank may have to interrupt the cuts, Ludmer warns, and she also lists the PEC 6x1 (a constitutional amendment bill in Congress), the tax reform and El Niño as upside risks for 2027 inflation, whose forecast has already risen from 3.8% to 4.3% since March: "these numbers are drifting away from the center of the target", she said. While Brazil cuts rates, the US and European central banks are signaling hikes, which can weigh on the real. "Brazil is going somewhat against the flow", she summed up.