The easing cycle advances, but restrictive policy remains central to the inflation strategy
Recent dynamics
Brazil entered 2025 with the Selic target at 12.25%. The Copom then accelerated monetary tightening as inflation pressures and expectations deteriorated, raising the policy rate to 13.25% in late January, 14.25% in March, 14.75% in May, and 15.00% in June.
The 15.00% rate was maintained for an extended period through March 18, 2026, allowing the restrictive stance to work through credit conditions, domestic demand, and inflation expectations. The policy cycle then changed direction: the Selic was reduced to 14.75% in March, 14.50% in April, 14.25% in June, 14.00% in August, and 13.75% in September.
The latest move leaves the Selic 1.25 percentage points below its 15.00% peak and also 1.25 percentage points below the level prevailing one year earlier. The sequence of 25 bp reductions in August and September confirms that the easing process is continuing, but at a measured pace rather than through an aggressive normalization of policy.
Interpretation and economic signal
The direction of monetary policy has clearly shifted from tightening to gradual easing, but the level of the Selic still represents a restrictive stance. The distinction is important: lower rates relative to the 15.00% peak reduce the degree of monetary restraint, but they do not imply that financial conditions have become expansionary.
In its September meeting, the Copom noted that headline inflation and underlying inflation measures had eased and moved below the upper limit of the tolerance range, while remaining above the 3% target. At the same time, domestic activity was showing gradual moderation but remained resilient, and the labor market continued to be tight.
Inflation expectations remain an important constraint on the speed of the easing cycle. The Central Bank reported Focus expectations of 4.9% for 2026 and 4.3% for 2027, both above the target. In its reference scenario, the Copom projected IPCA inflation at 5.2% in 2026, 3.9% in 2027, and 3.2% in the first quarter of 2028.
This backdrop explains the cautious calibration of policy. The Copom has emphasized elevated uncertainty, deanchored expectations, and significant risks around the inflation outlook. As a result, additional reductions in the Selic depend on continued evidence that inflation is converging toward the target and that the existing degree of monetary restraint remains sufficient for that process.
Conclusion
Brazil's monetary policy cycle has moved into a clear easing phase after the sharp tightening of 2025 and the prolonged period at 15.00%. The decline to 13.75% represents a meaningful reduction in the degree of restraint, with 125 bp of cumulative easing from the peak.
Even so, the policy signal remains cautious rather than accommodative. Inflation is still above target, expectations remain elevated, and the Central Bank continues to describe the environment as uncertain. The pace and extent of further easing will therefore depend on the evolution of inflation, expectations, economic activity, and the balance of risks rather than on a predetermined path for the Selic.