Is the Selic Rate Headed Lower in 2026?
Yes, according to Bank of America (BofA), the Selic rate is set to undergo a more aggressive easing cycle, pulling back to 13.25% by 2026. Analysts at the bank point out that the Brazilian economy is decelerating faster than anticipated, opening room for lower interest rates.
This shift in the outlook marks a major turning point for investors in Brazil. Until recently, the financial market's consensus was that the central bank would need to keep the benchmark interest rate elevated for much longer to contain inflation and the country's growth pace. With fresh signs of cooling economic activity, that thesis is beginning to lose traction among major global financial institutions.
Why Did Bank of America Revise Its Selic Forecast?
BofA strategists David Beker, Natacha Perez, and Gustavo Mendes detailed in a recent report that economic activity indicators in Brazil have begun showing clear signs of fatigue. The growth pace, which had been surprising to the upside in previous quarters, has started slowing down more sharply than the bank estimated in its own models.
When the economy cools, family consumption drops, and companies trim their production and hiring pace. This dynamic reduces demand-driven inflation, which occurs when there are more people looking to buy than products and services available on the market. With demand under control, the central bank gains the technical leeway to lower the Selic rate without the risk of reigniting inflationary pressures.
Given this diagnosis, the BofA team revised its estimates and now projects more aggressive interest rate cuts over the coming months, outlining a trajectory that should bring the Selic rate to 13.25% by 2026. This revision signals that the cost of money in Brazil is likely to drop faster than what the market consensus had previously mapped out.
What Does a Drop in the Selic Rate to 13.25% Mean for Fixed Income?
For fixed-income investors, the projection of lower interest rates demands an immediate shift in posture. The period of easy, double-digit returns on short-term, floating-rate investments—such as Tesouro Selic or daily-liquidity CDs—will begin yielding less as the central bank pushes forward with rate cuts.
In this transitional environment, two strategies gain relevance in a portfolio:
- Fixed-Rate Bonds (Prefixados): By investing in a fixed-rate bond today, the investor locks in current interest rates. If BofA's projection proves correct and the Selic rate falls to 13.25% by 2026, those who secured higher fixed rates will enjoy a real return superior to future market rates. Additionally, these bonds appreciate before maturity due to the mark-to-market effect.
- Inflation-Linked Bonds (IPCA+): These securities offer a real interest rate plus the variation of the IPCA, Brazil's official inflation index. In interest-rate cutting cycles driven by a cooling economy, the real rates offered by new issuances tend to decline. Investors who already hold these bonds in their portfolios will see the market value of the security rise, opening room for early sales with significant gains.
It is the daily update of a fixed-income bond's price. When expectations for future interest rates fall, older bonds paying higher rates become more valuable on the secondary market. Investors can take advantage of this movement to sell the bond before its maturity date and lock in a quick profit.
How Do Stocks and Real Estate Funds React to Lower Rates?
Equities tend to be the main beneficiaries of a more intense rate-cutting cycle. Although a Selic rate of 13.25% is still considered restrictive by global standards, the direction of the movement—the downward trend—dictates asset price behavior on the stock exchange (B3).
For publicly traded companies, lower interest rates translate directly into a reduction in debt servicing costs. Many corporations use loans and financing tied to the CDI, Brazil's interbank reference rate, to expand their operations. When interest rates drop, financial expenses decrease, resulting in an immediate boost to the net income distributed to shareholders.
In the Brazilian real estate fund market (FIIs), the impact is felt most clearly in brick-and-mortar funds—those holding physical properties such as logistics warehouses, shopping malls, and corporate office buildings. With fixed-income yields declining, retail investors return to seeking the tax-exempt monthly distributions offered by FIIs, driving up demand for units and boosting the funds' asset values. Furthermore, borrowing costs for new real estate projects fall, providing a tailwind for the construction and leasing sectors.
What Should Investors Monitor Going Forward?
Although Bank of America's projection is built on consistent data showing economic deceleration, investors should not treat this scenario as an absolute certainty. The path of interest rates through 2026 depends on dynamic factors that require constant monitoring.
The primary indicator to track is the behavior of inflation, particularly the IPCA and services inflation. If inflation proves more persistent than BofA calculates, the central bank may be forced to halt the easing cycle earlier than expected, keeping the Selic rate above the projected 13.25%.
Another critical point is the country's fiscal situation. Risk perceptions regarding the federal government's public accounts dictate exchange-rate behavior and long-term interest rates. Significant deviations from fiscal targets could push the dollar higher, importing inflation and limiting Copom's capacity to cut rates. Therefore, maintaining a diversified portfolio balanced between floating-rate, inflation-indexed, and equity assets remains the most effective defense against macroeconomic volatility.
BofA's signaling that the economy is cooling faster and that the Selic rate could drop to 13.25% by 2026 serves as a wake-up call for investors to shake off inertia. The window to lock in high yields on fixed-rate bonds and IPCA+ securities is beginning to narrow, while the appreciation potential for stocks and brick-and-mortar real estate funds gathers momentum.
