The election calendar calls for caution in forecasts for the Selic rate in a scenario of global "tightening".

The Monetary Policy Committee (Copom) holds eight meetings per year. On Wednesday, June 17th, when announcing the next Selic rate, the committee will reach the halfway point of its 2026 agenda. Meetings in August, September, November, and December will remain pending.

Economists and specialists in interest rate derivatives on the B3 (Brazilian stock exchange) are inclined to bet that the Selic rate will remain at 14.5% or, at most, fall to 14.25%. This would be the result of another 0.25 percentage point cut, the third this year. However, some project an increase in the rate – a possible but unlikely outcome.

Raising the Selic rate with the country heading towards another heated presidential election could weaken the already depleted Central Bank, which has been operating with two fewer directors since January because potential successors were not nominated by President Lula and, therefore, were not approved by the Senate – the highest body responsible for approving appointments to these positions.

The situation is delicate. This is because interest rates at their highest level in two decades haven't managed to bring down inflation or the economy, but they do have consequences: they transfer income to wealthy individuals who frequent Faria Lima (a major financial district in São Paulo), increase expenses related to the trillion-dollar public debt, and harass debtors, justifying, among other things, the renewed version of the "Desenrola" (a proposed financial restructuring program).

If the Copom (Monetary Policy Committee) follows the signal from its last meeting – to continue with the “calibration” of monetary policy – another cut in the Selic rate could be confirmed. This is against the backdrop of renowned analysts' assessment that economic activity will slow down in the second half of the year. Supporting this idea is the perception that monetary tightening will still produce effects, given the Central Bank's commitment to achieving the 3% inflation target and not the 4.5% ceiling.

The estimate of GDP growth to 2% this year, compared to 2.3% last year, is gaining momentum. Indicators from April – strong industry and services – led to the revision of projections. However, data from May collected by institutes other than IBGE weakened the forecast. This is the case with the Purchasing Managers' Index (PMI) monitored by S&P Global.

In May, the Manufacturing PMI fell from 52.6, the best result in 14 months, to 49.1 points, the Services PMI dropped from 52.30 to 50.4 points, and the Composite PMI fell from 52.40 to 49.5 points – 50 points being the boundary between expansion and contraction. According to S&P, the decline in orders for goods and services restricted job creation, which expanded at its slowest pace in four months, while cost pressures reached their highest levels in four years.

Galípolo without frills

In any case, bets on adjustments to the Selic rate require caution because, year after year, Brazil pays one of the highest interest rates in the world with dubious results. Not due to inefficiency on the part of the Central Bank. Gabriel Galípolo, without mincing words, has already indicated that monetary policy swims against the current of fiscal expansion and subsidies – a combination that weakens the institution's policy.

In the week that Japan, Australia, England, and Switzerland set base rates with an upward trend due to inflationary pressures stemming from escalating oil prices, thanks to the US-Iran conflict, the Federal Reserve, now under the leadership of Kevin Warsh, appointed by Donald Trump, will also discuss its rate on Wednesday, the 17th.

The world's largest central bank may signal an increase later this year, as predicted by the US Treasury futures market. However, even if confirmed, this decision will not necessarily influence the Brazilian Central Bank at this time, partly because the institution will be exposed to a "new" variable in deciding its next steps – the election calendar – which suggests containing market volatility.

In this context, the expectation arises that the Central Bank should distance itself from the elections, with the first round of voting on October 4th and a possible second round on October 25th. Avoiding adjustments to the Selic rate close to the election dates is prudent. This is also a way to avoid speculation about the Committee's decisions, whatever they may be, which could potentially suggest a preference for candidate A or B for the presidency.

And, by extension, also to avoid speculation about whether or not to maintain the current economic policy, which stubbornly fails to contain the growth of public debt, which in April exceeded 80% of GDP and continues to advance as if there were no tomorrow.

This trajectory holds for 2027 a pre-announced fiscal backlash fueled by "bomb bills" approved hastily by a Congress also rushing towards elections – the presidential election and the election in February 2027, when the presidencies of the Chamber and the Senate will be at stake.

This assumption suggests that the stability of the Selic rate in September is welcome. In the last general elections, in 2022, when then-candidate Luiz Inácio Lula da Silva was elected with 50.90% of the valid votes, against 49.10% for Jair Bolsonaro, caution prevailed at the Central Bank.

That year, the last action by the Copom (Monetary Policy Committee) occurred in August, when the Selic rate reached 13.75%, a rate sustained for an entire year, establishing Brazil as the world's highest payer of real interest rates, at 8.16%. This is the current level of remuneration for inflation-indexed NTN-B Treasury bonds. Proof that Brazil has moved but hasn't moved forward.