Brazil inflation tops central bank target before presidential runoff
Money Moves
Copom held the Selic at 13.75% on November 4 and raised its inflation forecasts; Lula has delayed fiscal decisions until after a trip ending November 15, and markets now price rate hikes
The Central Bank of Brazil held the Selic at 13.75% on November 4, ending a run of five straight cuts. It raised its inflation forecasts to 5.6% for 2026 and 4.7% for 2027, and said the outlook required caution.
President Luiz Inácio Lula da Silva has put off fiscal decisions until after a trip ending November 15, while markets price further tightening. Goldman Sachs expects no rate cuts until at least the second quarter of 2028, and Brazil's yield curve implies quarter-point hikes at each of the first three meetings next year.
Why it matters
Brazil's rate hold keeps borrowing costs near 14%, testing Lula's spending plans and the central bank's inflation target as markets price further tightening.
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Key Indicators
13.75%
Selic rate
Held on November 4, ending five straight cuts; the central bank said the outlook required caution
5.6%
2026 inflation forecast
Central Bank's November 4 estimate, up from 5.2% in September
4.7%
2027 inflation forecast
Raised from 3.9% in the central bank's November 4 report
4.62%
12-month IPCA-15
Mid-month inflation through October, above the central bank's 4.5% ceiling
3
Quarter-point hikes priced
Brazil's yield curve implies 25-basis-point increases at each of the first three monetary policy meetings next year
30 events
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November 2026
Goldman Sachs sees no rate cuts until at least Q2 2028
LatestMarket
Goldman Sachs forecast the Selic would stay unchanged until at least the second quarter of 2028, citing uncertainty over fiscal policy and growth. Other analysts expect no change before the end of 2027.
Lula delays fiscal decisions until after November 15 trip
Policy
Finance Minister Dario Durigan said Lula would decide on potential fiscal measures after returning from trips to Turkey, COP31 and the Philippines. Spending reviews and budget-control changes are among the options.
Copom holds Selic at 13.75%, ending easing cycle
Monetary policy
The central bank held the Selic at 13.75%, interrupting five straight cuts. It raised its 2026 inflation forecast to 5.6% and 2027 to 4.7%.
Inflation expectations jump on fears of unorthodox policy
Market
Breakeven inflation rates rose after a report that Lula planned to meet economist André Lara Resende, who has proposed cutting the Selic to 7.5% within 12 months. Finance Minister Dario Durigan denied the meeting was planned.
Market shifts toward expecting a Selic hold
Market
A Bloomberg survey found 10 of 18 economists expected the central bank to hold the Selic at 13.75% on November 4, after eight changed their forecasts following Lula's win. The dollar's post-election surge and fiscal uncertainty drove the shift.
October 2026
Dollar closes at R$5.447, up 9.2% on the week
Market
The real's slide after Lula's win pushed the dollar to its highest close of the year, prompting economists to raise inflation forecasts.
Post-election survey lifts 2026 and 2027 inflation forecasts
Economic data
A BGC Liquidez survey of about 30 market participants put IPCA at 5.30% for 2026 and 2027 and 4.30% for 2028, worse than the pre-election Focus survey.
Treasury buyback totals R$14.81 billion
Policy
Two buyback auctions retired 8.4 million fixed-rate bonds and 1,757.85 million NTN-B inflation-linked bonds. The total cost was R$14.81 billion.
Focus survey cuts 2026 inflation forecast to 5.19%
Economic data
The survey median for 2026 inflation fell from 5.22% and 2027 rose to 4.34%. The median for 2026 Selic stayed at 13.25%, with 2027 cut to 11.75%. Responses closed Friday, before the runoff.
Brazilian assets sell off after election; rate futures jump
Market
The Ibovespa fell more than 15% intraday and the dollar rose above R$5.50. B3 halted stock trading with a circuit breaker and raised futures limits three times. The January 2028 DI contract jumped from 12.855% to 14.905% by the close.
Treasury cancels auctions and buys back bonds
Policy
The Treasury canceled its inflation-linked bond auction and a fixed-rate auction to avoid pushing rates higher. It then held an extraordinary buyback of about R$7.1 billion in fixed-rate bonds.
Presidential runoff scheduled
Election
Lula faces Flávio Bolsonaro with cost of living dominating voter concerns.
Lula wins presidential runoff over Flávio Bolsonaro
Election
Lula won a fourth presidential term after trailing Bolsonaro in the first round. The result overturned pre-election expectations.
IPCA-15 slows to 0.32% in October, below forecasts
Economic data
The mid-month index rose 0.32% after 0.70% in September, below the market median of 0.45%. The 12-month rate rose to 4.62%, above the 4.5% ceiling.
Focus survey holds 2026 inflation at 5.22%
Economic data
The central bank's survey of about 100 institutions kept the 2026 IPCA median at 5.22%, raised 2027 to 4.32% from 4.30%, and cut 2026 GDP growth to 1.83% from 1.85%. It still sees the Selic at 13.25% by December.
IGP-10 accelerates to 1.76% in October
Economic data
FGV's general price index rose at its fastest pace since April, after 1.47% in September. Wholesale prices drove it: gasoline up 16.03%, ethanol 12.26%, soy meal 8.30%.
Runoff narrows to 49.8% to 47.6% in Atlas/Bloomberg poll
Election
Flávio Bolsonaro's lead over Lula shrank from 51.1% to 45.7% in the October 8 poll, six days before the October 25 vote.
Central bank activity index rises 0.3% in August
Economic data
The IBC-Br index rose 0.3% from July, matching forecasts, led by industry's 0.9% gain. The central bank expects GDP growth of 1.8% this year, slowing to 1.4% in 2027.
IPC-S rises 0.46% in second four-week period of October
Economic data
FGV's weekly price gauge is up 4.29% over 12 months. Transport prices led the latest reading; food and housing gains slowed.
Lula unveils aid measures ahead of runoff
Policy
Proposes bill to forgive R$12.6 billion in tax debts for 3.6 million micro-entrepreneurs starting 2027; also zeroed gasoline tax and added diesel subsidies, with fiscal cost of R$5.2 billion over 30 days.
Economists cut longer-term inflation forecasts
Economic data
After the first round, the median 2027 IPCA forecast fell to 4.25% from 4.3% and 2028 to 3.7% from 3.76%, as markets priced a tighter fiscal stance under a likely Bolsonaro presidency.
Focus survey raises inflation forecast to 5.22%
Economic data
Analysts raised 2026 inflation forecast to 5.22% from 5.01%, fourth straight weekly increase; lowered Selic projection to 13.25% from 13.50%.
September inflation tops target ceiling
Economic data
IPCA rises 0.82% monthly; 12-month rate hits 4.58%, above the 4.5% band, on electricity costs.
Lula eliminates federal gasoline tax
Policy
Removes the federal tax on gasoline ahead of the October 25 runoff to ease fuel costs; gasoline rose 1.21% in September.
Bolsonaro leads first-round election
Election
Flávio Bolsonaro takes 47.45% of valid votes, setting up an October 25 runoff with Lula.
Post-first-round polls show Bolsonaro ahead
Election
Datafolha put Flávio Bolsonaro at 49% to Lula's 45%; Atlas/Bloomberg had him at 51.1% versus 45.7%.
Finance Minister Durian presses for rate cuts
Policy
Durian says inflation is under control but high rates remain a problem and interest rates need to come down. Market commentators read the public push as pressure on the central bank's formal autonomy.
September 2026
Selic cut to 13.75%
Monetary policy
Fifth straight reduction, bringing the benchmark down from 14.75% since April.
August 2026
IPCA posts deflation month
Economic data
Prices fall 0.32% as the Itaipu electricity credit cuts bills; 12-month rate drops to 4.22%.
April 2026
Central bank begins cutting the Selic
Monetary policy
Easing cycle starts from a 14.75% benchmark rate, the first of what becomes five straight cuts.
Scenarios
1
Copom cuts Selic to 13.50% in November
Deadline passed (Nov 4, 2026)
Discussed by: Bloomberg survey of 18 economists and O Globo market coverage
Before the runoff, a quarter-point cut was the base case. After Lula's win, most economists abandoned that call: 10 of 18 surveyed by Bloomberg expected a hold at 13.75%, while eight still projected a cut to 13.50%.
2
Copom holds Selic at 13.75% as inflation stays above target
Deadline passed (Nov 4, 2026)
Discussed by: Bloomberg survey of 18 economists and O Globo
After the runoff, most economists surveyed by Bloomberg expected the central bank to hold at 13.75% on November 4. The dollar's 9% weekly jump and fiscal uncertainty outweighed the case for another quarter-point cut.
3
Inflation formally breaches target with six months above the ceiling
Uncertain
Resolves by Mar 15, 2027
Discussed by: CMN rule change effective since January 2025
Since January 2025, the target is judged on rolling 12-month rates and formally missed if inflation exceeds the 4.5% band for six consecutive months. September restarted such a streak after June's 4.64% reading, which August's 4.22% had interrupted. If prices stay above the ceiling through February 2027, the target is breached.
4
Gasoline tax cut pulls October inflation back toward the ceiling
Deadline passed (Nov 10, 2026)
Discussed by: Extrapolation from Lula's October 11 tax measure
Eliminating the federal gasoline tax lowers pump prices in October, easing transportation inflation. September's spike came from a one-time Itaipu credit reversal; the tax cut is a similar one-off that could offset it.
5
Fiscal cost of Lula's fuel and tax measures weighs on markets
Deadline passed (Nov 4, 2026)
Discussed by: Economists quoted in Latin Times and Valor International
The gasoline tax zeroing and diesel subsidies cost R$5.2 billion over 30 days, and the tax forgiveness bill costs R$3 billion over three years. If investors see this as fiscal expansion, the real could weaken and push inflation expectations higher, complicating the Copom's easing path.
6
Political pressure on the Copom tests central bank independence
Deadline passed (Nov 4, 2026)
Discussed by: Newsquawk market commentary
Finance Minister Durian's public push for lower rates lands days before the November 4 decision. Repeated ministerial pressure on rate policy historically raises questions about the bank's formal autonomy, and the credibility of the inflation-targeting framework is the collateral at stake.
7
Flávio Bolsonaro wins the October 25 runoff
Deadline passed (Oct 25, 2026)
Discussed by: Atlas/Bloomberg poll published October 19
The poll put Bolsonaro at 49.8% of total votes to Lula's 47.6%, a 2.2-point gap that narrowed from 5.4 points on October 8. First-round results and earlier surveys also had him ahead, but Resolved: Lula won the October 25 runoff.
8
Copom raises Selic to 14.00% on November 4
Deadline passed (Nov 4, 2026)
Discussed by: Rate-futures pricing cited by Reuters on October 26
Rate futures briefly priced about a 75% chance of a 25 basis-point hike after the runoff. By November 2, most economists expected a hold instead, though the market remained volatile.
9
Copom pauses easing cycle after election shock
Deadline passed (Nov 4, 2026)
Discussed by: Bloomberg survey of 18 economists, O Globo
Ten of 18 economists surveyed by Bloomberg expected the central bank to hold the Selic at 13.75% on November 4, ending a run of five straight cuts. The dollar's post-election surge and weaker inflation outlook made another quarter-point cut harder to justify.
10
Lula announces fiscal measures after his November 15 trip
Likely
Resolves by End of 2026
Discussed by: Finance Minister Dario Durigan and Reuters
Durigan said Lula would decide on spending, benefits and budget-control options after returning from Turkey, COP31 and the Philippines. The government is also considering changing fiscal framework rules to allow a permanent cut to the spending limit when budget freezes are needed, Folha reported.
11
Copom resumes rate cuts in 2028
Possible
Resolves by Q2 2028
Discussed by: Goldman Sachs economist Alberto Ramos
Goldman Sachs forecast the Selic would stay unchanged until at least the second quarter of 2028, with only limited room for cuts after that. Ramos cited uncertainty over fiscal policy and growth.
Historical Context
2 moments from history that rhyme with this story — and how they unfolded.
1 of 2
2015-2016
Brazil's 2015-2016 inflation crisis
Inflation broke past the target band in 2015, peaking at 10.71% in January 2016. The central bank hiked the Selic to 14.25% amid a deep recession, while a corruption and political crisis gripped Brasília.
Then
Inflation fell as the recession bit, but living standards dropped sharply and Dilma Rousseff was impeached in 2016.
Now
The episode cemented the inflation-targeting framework and made price stability a central political issue in Brazil.
Why this matters now
Shows how inflation breaking the band can collide with a political crisis, the same combination Brazil faces ahead of its runoff and November rate decision.
2 of 2
2021-2022
Brazil's 2021-2022 inflation surge
Post-pandemic inflation hit 12.13% annual in April 2022 on food and fuel costs. The central bank hiked the Selic from 2% in early 2021 to 13.75% by August 2022.
Then
Inflation eased through 2022 and 2023, and the cost of living was central to the October 2022 election, which Lula won.
Now
The aggressive tightening restored credibility; 13.75%, the rate reached in 2022, is the level today's easing cycle has descended to.
Why this matters now
Election-year inflation helped define the previous campaign Lula won; this race has the same dynamic, with the Selic at the same level but heading down.
