Brazil's central bank stops cutting rates, citing the currency and the war
Brazil's central bank kept its Selic rate at 13.75% on 4 November, ending a run of five quarter-point cuts. Many economists had expected another cut. It pointed to the real's instability after the election, the war in the Middle East and inflation above its ceiling.
What happened
Brazil's monetary policy committee, the Copom, kept the Selic rate at 13.75% on 4 November, in a unanimous vote. It was the first pause after five consecutive cuts of a quarter point each this year. Before those cuts, the Selic had stayed at 15%, its highest in almost two decades, from June 2025 to March 2026.
The decision surprised part of the market: in the Projeções Broadcast survey, 39 of 75 forecasters expected a cut to 13.50% and 36 a hold. Reports of the decision cited instability in the real after the presidential runoff, the war in the Middle East and its effect on commodities, and the onset of El Niño, which can disrupt harvests.
Why the currency matters for rates
When a currency falls, everything a country imports costs more in local money: fuel, fertiliser, machinery, many foods. Those higher costs feed into inflation within months. A central bank that cuts rates while its currency is falling risks adding to the slide, because lower rates make holding the currency less attractive to investors. After Luiz Inácio Lula da Silva's re-election on 25 October, futures pointed to a sharp fall in the real and Brazilian shares had their worst day since 2020.
Why inflation leaves little room
Brazil's inflation target is 3%, with a tolerance of 1.5 points either side. The mid-month IPCA-15 index showed prices up 4.62% over the 12 months to mid-October, above the 4.5% ceiling. Since 2025, the target is checked every month against 12-month inflation, so staying above the ceiling for long counts as a miss.
Where it sits in the chain
This is Link 2, the central bank's reaction, shaped by Link 4: currency and bond markets that react to doubts about the public finances. Brazil's government debt is about 97% of GDP, and high rates make that debt costlier to carry.
What to watch
- The real against the dollar, and any statements on the new government's fiscal plans.
- Full October IPCA inflation, due in mid-November.
- The Copom's next meeting in December.
- 1Inflation
- 2Central bank
- 3Expected rates
- 4Long-term yields
- 5Real economy
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Sources
- Banco Central do Brasil, Copom decision (4 November 2026), as reported by Suno and SpaceMoney; forecasts from the Projeções Broadcast survey
- IPCA-15 inflation for October 2026: IBGE, as reported by Suno