The external environment, the prospect of low interest rates, and the credibility that Gabriel Galípolo has earned at the helm of the Central Bank (BC) allow us to foresee cuts in the Selic rate that are even slightly larger than expected by the market, with a good margin of safety. But this is only until the first half of the year.

After that, the elections come into focus, with the country's fiscal policy being the main topic. If nothing is done, all the work done so far by the monetary authority could be wasted, and not even a favorable global situation will be enough to calm the situation, according to Bruno Serra , fund manager at Itaú Asset, and Rodrigo Azevedo , co-founder and partner at Ibiuna Investimentos.

Both, who were previously directors of the Central Bank, believe that the moment is quite favorable for loosening monetary policy. One of the reasons comes from the comfortable external scenario, with the appreciation of the dollar and the prospect that the Federal Reserve (Fed, the American central bank) will continue cutting interest rates.

The second factor stems from well-controlled inflation expectations at low levels, with the Selic rate projected to close the year at 3.5%, below the 4% estimated by the market, according to the most recent Focus Bulletin – this figure represents the third consecutive cut in expectations.

Given this scenario, Serra sees room to go beyond expectations, considering that the financial market expects the Selic rate to close the year at 12.25%.

“I think the cuts will begin in March, with a reduction of 0.50 percentage points, and we may have a much more intense cycle than consensus expects, going up to 11%,” he said on Tuesday, January 27, at the Latin America Investment Conference (LAIC) 2026, an event promoted by UBS and UBS BB .

According to him, the Selic rate at 15% was a result of the Central Bank's need to implement a "credibility shock." He recalls that President Luiz Inácio Lula da Silva 's third term began with a huge fiscal expansion, resulting from the Transition Amendment and the payment of court-ordered debts .

Furthermore, the first transition of leadership at the independent Central Bank raised doubts about the anchoring of inflation expectations, given the resistance of many politicians to this regime. "I think it will be smoother from now on, but the first transition was painful and the Central Bank needed to prove itself. What happened was that it proved itself," said Serra.

Azevedo - who agrees that the easing will begin in March and expects the Selic rate to fall 3 percentage points this year, to 12% per year - stated that the Central Bank opted for risk management amidst the uncertainties, echoing Serra's perception that the authority sought to assert itself in the face of market pressure.

According to him, the Central Bank has earned the right to "return the 3 percentage points" added to the Selic rate since Galípolo took over. After that, it will be necessary to observe the next developments. Azevedo also highlighted that the institution's president has been doing a good job. "It's important to have luck in life, but conducting monetary policy correctly makes all the difference," he said.

The big question is what will come of the elections. More specifically, what signal will be sent regarding fiscal policy, considering that the debt is nearing 80% of GDP and interest rates remain high.

According to Serra, a credible fiscal adjustment, on the order of 1.5 percentage points on the revenue side, could help reduce the Selic rate to around 8%, close to neutral. But this depends on the outcome of the elections and the external environment.

“If the government continues, it is necessary to know whether the market will have an external backdrop that allows it to sustain this government or not, and whether the same thing that happened in Dilma 's election will happen again,” he said. “It is difficult to predict what this backdrop will be, and it is key.”

Azevedo, however, believes that an adjustment of around 1.5 percentage points is insufficient to calm market sentiment, highlighting that Brazil missed the opportunity to make gradual adjustments given the situation.

“You can’t think you can just put a band-aid on it and everything will be fine. Either you make a real adjustment or you continue telling lies to the market,” he stated. “The global scenario is very important, but when local fundamentals worsen, local fundamentals prevail.”