Brazil's central bank holds Selic at 13.75%, ending run of cuts

Copom holds at 13.75%

Copom voted unanimously on Wednesday to keep the Selic at 13.75%, the level set at its 16 September meeting, when it delivered the fifth consecutive quarter-point cut.

A hold at 13.75% keeps Brazilian bonds paying one of the world's highest yields, which favours dollar investors who lend in reais. It also leaves heavily indebted retailers and homebuilders under pressure for longer.

The central bank began the year at 15.00% and cut by a quarter point at each of its five meetings from March to September. In its statement the committee pledged to keep policy "adequately restrictive" to bring inflation back to target. Policymakers said inflation risks appeared tilted to the upside, while noting a "more pronounced deceleration of domestic economic activity".

Why the hold lands where it does

Brazil's inflation target is 3%, with a tolerance band of 1.5 percentage points either way, so the Selic sits far above what the official goal implies. Annual inflation of 4.6% remains above the top of that band, and markets expect it to stay above the 3% target until as late as 2029, the Straits Times reported.

Before the vote, investors were positioned for more easing. Immediately before the 25 October runoff, they were largely pricing two consecutive 25-basis-point cuts, one in November and another next month. Options contracts traded on Brazil's exchange earlier on Wednesday suggested investors expected rates to remain unchanged. The statement offered little guidance on next steps.

The decision follows a sharp fall in Brazil's currency and stock market after Lula's surprise win over senator Flavio Bolsonaro in the 25 October runoff. Policymakers said the outlook required "serenity and caution".

The board is the next battleground

Lula, frustrated by high rates he says hold back growth, has begun consulting advisers and economists on ways to bring the Selic down in his fourth term, Valor International reported.

He can name six of the nine people who set the Selic by the end of 2027. Two seats have been empty since 1 January 2026, when Diogo Guillen (economic policy) and Renato Gomes (financial-system organisation) left at the end of their terms. Two more terms end on 28 February 2027, those of monetary-policy director Nilton David and supervision director Ailton Aquino Santos. The last two end on 31 December 2027, when the terms of Paulo Picchetti (international affairs) and Rodrigo Teixeira (administration) run out. Chair Gabriel Galípolo and directors Gilneu Vivan and Izabela Correa serve until 31 December 2028, so a full slate of Lula picks would hold a two-thirds majority from 2028.

Lula is looking for more heterodox candidates, Valor reported on 3 November. One name under discussion is André Roncaglia, Brazil's executive director at the IMF. Lula has an understanding with Senate President Davi Alcolumbre to submit nominations later this month for two Central Bank seats, the directors of Financial System Organization and Resolution and of Economic Policy, vacant since January. It is unclear whether David and Santos will be reappointed, given Lula's wish for fresh perspectives on the board.

A denied rumour and a weaker market

Finance Minister Dario Durigan denied on 2 November that officials were weighing a cap on interest rates. He also ruled out using foreign-exchange reserves to hold the real steady, after days of market chatter about economist André Lara Resende's ideas.

A cap would mean elected officials, not the central bank, decide where rates sit. Investors treat the bank's independence as a pillar of Brazil's credibility, so even a denied rumour can move traders.

Markets grew uneasy after O Globo columnist Lauro Jardim reported on 1 November that Lula might meet Lara Resende, an architect of the 1994 Real Plan who has proposed unconventional ways to lower the Selic, including an explicit interest rate target. Durigan said no meeting is scheduled between the two.

EWZ, the US-listed fund that tracks Brazilian stocks, slipped 0.9% to US$32.16 on Monday, two days before the decision, and has lost about 4% since closing at US$33.62 on 28 October. The dollar-real rate was near 5.44 reais per dollar late on Monday, little changed on the day. Lula met Galípolo on 28 October at the Palácio da Alvorada to discuss household debt. Durigan has called the level of the Selic a bottleneck for the economy.

What happens next

Any nominee needs Senate approval, and the economic affairs committee questions candidates first.

Since 2021 a law has made the central bank independent, with board members serving fixed terms. Calm, career picks would steady the real, while overtly political ones would be read as a threat to the bank's independence. Lula has not formally nominated anyone.