With inflation slowing down, but some prices, such as energy and food, under pressure, the Monetary Policy Committee (Copom) of the Central Bank (BC) holds its last meeting of the year this Wednesday (10). Market analysts believe the rate will remain at its highest level in almost 20 years.
Currently at 15% per year, the Selic is at its highest level since July 2006, when it was at 15.25% per year. Since September last year, the rate has been raised seven times in a row. At the July, September and November meetings, the Copom did not change the rate.
The decision on the Selic Rate will be announced early this Wednesday evening. In the minutes of the last meeting, in November, the Copom informed that the Selic will be maintained at 15% per year for an extended period of time to guarantee the convergence of inflation to the target.
According to the Copom minutes, the current scenario continues to be marked by high uncertainty, which requires caution in the conduct of monetary policy. In the domestic scenario, some prices, such as energy, continue to put pressure on inflation, despite the economic slowdown.
According to the most recent edition of the Focus Bulletin, a weekly survey of market analysts, the base rate must be maintained at 15% per year until the end of this year or beginning of 2026. The divergence now is on the timing next year when interest rates will begin to fall.
Inflation
The behavior of inflation remains unknown. The preview of official inflation, the Broad National Consumer Price Index-15 (IPCA-15), was just 0.2% in October and accumulates 4.5% in 12 monthshaving returned to the ceiling of the goal. The full IPCA for November will only be released this Wednesday.
According to the latest Focus Bulletin, the inflation estimate for this year fell to 4.4%, against 4.55% four weeks ago. This represents inflation just below the ceiling of the continuous target established by the National Monetary Council (CMN), of 3%, which could reach 4.5% due to the tolerance interval of 1.5 points.
Selic Rate
The basic interest rate is used in negotiations of public bonds issued by the National Treasury in the Special Settlement and Custody System (Selic) and serves as a reference for other rates in the economy. It is the Central Bank’s main instrument for keeping inflation under control. The BC operates daily through open market operations – buying and selling federal public bonds – to keep the interest rate close to the value defined at the meeting.
When Copom increases the basic interest rate, it aims to contain heated demand, and this has an impact on prices because higher interest rates make credit more expensive and encourage savings. Therefore, higher rates can also make it difficult for the economy to expand. But, in addition to the Selic, banks consider other factors when defining the interest charged to consumers, such as risk of default, profit and administrative expenses.
By reducing the Selic, the tendency is for credit to become cheaper, encouraging production and consumption, reducing inflation control and stimulating economic activity.
The Copom meets every 45 days. On the first day of the meeting, technical presentations are made on the evolution and prospects of the Brazilian and world economies and the behavior of the financial market. On the second day, the members of the Copom, formed by the BC board, analyze the possibilities and define the Selic.
Continuous goal
For the continuous goal system In force since January this year, 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 December this year, inflation since January is compared with the target and tolerance interval. In January 2026, the procedure is repeated, with calculation starting in February 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 September by the Central Bank, the monetary authority maintained the forecast that the IPCA will end this year at 4.8%but the estimate must be revised. The next edition of the document, which replaced the Inflation Report, will be released at the end of December.
