Brazil’s Monetary Policy Committee (COPOM) announced on November 5, 2025, that the benchmark Selic rate remains unchanged at 15.00%. This decision aligns with market expectations and marks a pause after aggressive hikes since July 2024. The geographic scope covers Brazil’s domestic economy, while temporal focus is on the latest monthly update and its evolution over the past 16 months.

Drivers this month

• Inflation persistence: Core inflation remains above the 4.00% target midpoint, pressuring the central bank to maintain a tight stance.
• Economic growth: GDP growth slowed to 1.20% YoY in Q3 2025, signaling cautious consumer and business sentiment.
• External shocks: Commodity price volatility and geopolitical tensions in Latin America add uncertainty to the outlook.

Policy pulse

The Selic rate at 15.00% is the highest since 2016, reflecting a hawkish bias to anchor inflation expectations. The rate has risen sharply from 10.50% in July 2024, a 4.50 percentage point increase in less than 16 months. This tightening cycle is among the most aggressive in Brazil’s recent history.

Market lens

Immediate reaction: The BRL/USD exchange rate appreciated modestly by 0.30% within the first hour post-announcement, while 2-year government bond yields held steady near 13.50%. Breakeven inflation swaps for 2026 edged down by 5 basis points, signaling tempered inflation expectations.

Core macroeconomic indicators underpin the central bank’s decision. Inflation, growth, employment, and fiscal metrics provide a comprehensive backdrop.

Inflation and growth

• Headline inflation (IPCA) stood at 5.80% YoY in October 2025, down from 6.30% in July but still above the 3.50% target ceiling.
• Core inflation, excluding volatile food and energy, remains sticky at 5.10% YoY, indicating underlying price pressures.
• GDP growth slowed to 1.20% YoY in Q3 2025, down from 2.00% in Q2, reflecting weaker domestic demand and investment.

Labor market and fiscal policy

• Unemployment rate improved slightly to 8.40% in October 2025 from 8.70% in July, supporting consumer spending.
• Fiscal deficit narrowed to 3.20% of GDP in Q3 2025, aided by tax reforms and expenditure controls.
• Government debt remains elevated at 75% of GDP, constraining fiscal space amid higher interest costs.

External environment

• Commodity exports, especially soy and iron ore, faced price volatility, impacting trade balance.
• Geopolitical risks in Latin America, including regional elections and trade tensions, add uncertainty.

Drivers this month

• Inflation expectations: Breakeven inflation rates declined slightly, reflecting market confidence in the central bank’s credibility.
• Economic growth: Slower GDP growth reduces pressure for further hikes but limits room for cuts.
• Fiscal discipline: Improved budget metrics support monetary policy effectiveness.

Market lens

Immediate reaction: The BRL/USD exchange rate strengthened by 0.30%, while 2-year government bond yields remained stable near 13.50%. Inflation-linked bonds saw modest gains, reflecting tempered inflation fears.

Looking ahead, Brazil’s monetary policy faces a complex environment balancing inflation control and growth support.

Scenario analysis

• Bullish (30% probability): Inflation falls below 4.50% by mid-2026, allowing gradual rate cuts starting Q3 2026. GDP growth rebounds to 2.50% YoY, supported by fiscal stimulus and stable commodity prices.
• Base (50% probability): Inflation remains near 5%, prompting a prolonged hold on rates through 2026. Growth stays subdued around 1.50%, with fiscal discipline maintained but external risks persisting.
• Bearish (20% probability): Inflation surprises to the upside above 6%, forcing further hikes to 16% or higher. Growth stalls below 1%, and fiscal pressures intensify amid geopolitical shocks.

Policy pulse

The central bank’s forward guidance emphasizes data dependency, signaling readiness to adjust rates if inflation deviates from target. The pause at 15% is tactical, not terminal.

Market lens

Financial markets remain sensitive to inflation prints and fiscal developments. Currency volatility may increase if external shocks worsen, while bond yields could rise if inflation expectations become unanchored.

Brazil’s interest rate decision to hold the Selic at 15.00% reflects a cautious but firm stance amid persistent inflation and moderate growth. The rapid tightening since mid-2024 has anchored inflation expectations but at the cost of higher borrowing costs and fiscal strain. External risks and geopolitical uncertainties add complexity to the outlook.

Investors and policymakers should watch inflation trends closely, especially core measures, alongside fiscal developments and commodity markets. The central bank’s data-driven approach suggests flexibility but also a readiness to defend its inflation target robustly.

Overall, Brazil’s monetary policy remains in a delicate balancing act, with a plateau in rates likely in the near term but risks skewed toward further tightening if inflation proves more persistent than expected.