Despite the decline in inflation and the dollar, the Central Bank (BC) did not change interest rates. Unanimously, the Monetary Policy Committee (Copom) maintained the Selic Rate, the economy’s basic interest rate, at 15% per year. The decision was expected by the financial market.
This is the fifth consecutive meeting in which the Copom maintains basic interest rates. The rate is at its highest level since July 2006, when it was 15.25% per year.
In the statement, the Copom confirmed that it should start reducing interest rates at the March meeting, if inflation remains under control and there are no surprises in the economic scenario.
“The Committee expects, if the expected scenario is confirmed, to begin easing monetary policy at its next meeting, but reinforces that it will maintain the appropriate restriction to ensure the convergence of inflation to the target”, informed the BC.
The unanimous decision occurred with Copom missing. At the end of 2025, the mandate of the directors of Organization of the Financial System, Renato Gomes, and of Economic Policy, Paulo Pichetti, expired. President Luiz Inácio Lula da Silva will only forward the nominations for replacements when the National Congress returns, in February.
After reaching 10.5% per year in May last year, the rate began to be raised in September 2024. The Selic reached 15% per year at the meeting in June last year, having been maintained at that level since then.
Inflation
Selic is the Central Bank’s main instrument for keeping official inflation under control, measured by the Broad National Consumer Price Index (IPCA). In 2025, the IPCA stood at 4.26% the lowest annual level since 2018. As a result, the indicator returned to within the ceiling of the continuous inflation target.
For the new continuous goal systemin force since January, the inflation target that must be pursued by the BC, defined by the National Monetary Council, is 3%, with a tolerance range of 1.5 percentage points up or down. That is, the lower limit is 1.5% and the upper limit is 4.5%.
In the continuous target model, the target is determined month by month, considering the inflation accumulated over 12 months. In January 2026, inflation since February 2025 is compared with the target and tolerance range. In February 2026, the procedure is repeated, with calculation starting in March 2025. In this way, the verification moves over time, no longer being restricted to the closed index from December of each year.
In the latest Monetary Policy Report, released at the end of December by the Central Bank, the monetary authority reduced the IPCA forecast for 2026 to 3.5%, but the estimate will be revised, due to the behavior of the dollar and inflation. The next edition of the document, which replaced the old Inflation Report, will be released at the end of March.
Market forecasts are less optimistic. According to the bulletin Focusweekly survey of financial institutions released by the BC, official inflation is expected to close the year by 4%slightly above the target ceiling. A month ago, market estimates were at 4.05%.
Expensive credit
The increase in the Selic rate helps contain inflation. This is because higher interest rates make credit more expensive and discourage production and consumption. On the other hand, higher rates hinder economic growth. In the last Monetary Policy Reportthe Central Bank increased growth projection from 1.5% to 1.6% for the economy in 2026.
The market projects slightly better growth. According to the latest edition of the bulletin Focuseconomic analysts predict expansion of 1.8% of GDP in 2026.
The basic interest rate is used in public bond negotiations in the Special Settlement and Custody System (Selic) and serves as a reference for other interest rates in the economy. By readjusting it upwards, the Central Bank holds back the excess demand that puts pressure on prices, because higher interest rates make credit more expensive and encourage savings.
By reducing basic interest rates, the Copom makes credit cheaper and encourages production and consumption, but weakens inflation control. To cut the Selic, the monetary authority needs to be sure that prices are under control and are not at risk of rising.
