What Did Bank of America Project for the Selic in 2027?
Bank of America (BofA) estimates that the Selic rate will reach 11.25% by the end of 2027. According to a report released by the financial institution to its clients, the relief in the benchmark interest rate will directly benefit companies with debt tied to the CDI and long-term assets, with Equatorial (EQTL3), Ecorodovias (ECOR3), and Allos (ALSO3) standing out as the primary picks.
This macro scenario revision outlines a gradual path toward interest rate convergence in Brazil. In the investment bank's view, easing inflation and a readjustment in market expectations create room for the Central Bank to lower the Selic over the coming years, moving away from its current restrictive level toward a more neutral stance.
BofA's projection of 11.25% in 2027 serves as the estimated endpoint for the easing cycle. This shift alters the valuation calculations for companies traded on the Brazilian stock exchange (B3), since the discount rate used to bring future cash flows to present value declines, favoring companies with heavy productive leverage or extended investment profiles.
The firm's core thesis: When the Selic falls toward the 11.25% range, the interest rate reduction does not merely make credit cheaper for the retail consumer; it directly lowers net financial expenses for companies with significant operational leverage.
Why Does a Falling Selic Directly Impact Company Valuations?
When the benchmark interest rate remains elevated, corporate capital costs rise, squeezing the net profit margins of companies that use third-party capital to finance their expansion. With the Selic projected at 11.25% by Bank of America for 2027, listed companies stand to see a twofold relief on their financial statements.
The first effect is a direct reduction in financial expenses. Brazilian companies predominantly issue debentures and take out bank loans indexed to the CDI (Interbank Deposit Certificate), which tracks closely alongside the Selic. Each 1 percentage point cut in the interest rate represents direct savings of millions of reais in debt servicing costs, boosting net income without requiring an increase in operating revenue.
The second effect concerns the weighted average cost of capital (WACC). In discounted cash flow models, lower interest rates result in lower discount rates. This causes profits projected five or ten years out to be worth more in the present, triggering a repricing of stock multiples in the secondary market.
| Company (Ticker) | Sector | Selic Sensitivity | BofA Catalyst |
|---|---|---|---|
| Equatorial (EQTL3) | Utilities / Energy | High (Leverage) | Lower financial expenses and CDI-linked debt. |
| Ecorodovias (ECOR3) | Infrastructure / Concessions | High (Capex / Long-Term) | Refinancing relief and traffic expansion. |
| Allos (ALSO3) | Shopping Centers / Real Estate | High (Consumption and Cap Rates) | Consumption recovery and physical asset appreciation. |
What Are BofA's 3 Preferred Stocks to Surf the Rate-Cut Cycle?
Bank of America highlighted three specific names as its preferred choices among companies with the highest sensitivity to falling interest rates in the Brazilian market. The bank's selection factored in asset quality, current financial leverage, and the potential for multiple expansion on the B3.
1. Equatorial Energia (EQTL3)
Equatorial made BofA's list as one of the country's leading utility operators, with a strong presence in the distribution, transmission, and sanitation segments. The company features capital-intensive investments and a substantial debt structure dedicated to modernizing its acquired concessions.
With the Selic rate falling toward 11.25%, Equatorial reduces its cost of debt, unlocking free cash flow generation for shareholders. The bank's thesis relies on a combination of operational predictability, inflation-protected tariff adjustments, and a sharp reduction in financial expenses as interest rates recede.
2. Ecorodovias (ECOR3)
In the infrastructure and highway concession sector, Ecorodovias was highlighted by Bank of America due to the long duration of its concession contracts. Companies that manage toll roads operate under long-term contracts where the cost of capital is a decisive factor in a stock's fair value.
The stabilization of the Selic at 11.25% by 2027 improves the debt rollover profile for Ecorodovias, which took on financing to cover heavy capex commitments for new concessions. Furthermore, lower interest rates stimulate broader economic activity, driving light and heavy vehicle traffic across toll plazas.
3. Allos (ALSO3)
Allos, the shopping center giant resulting from the merger between Aliansce Sonae and BR Malls, represents BofA's bet on the commercial real estate and retail sector. The mall sector feels the pressure of high interest rates on two fronts: the cost of real estate debt and the occupancy rates and sales of its tenants.
According to BofA, the projected drop in the Selic improves household credit conditions and boosts disposable income, driving sales in brick-and-mortar stores. At the same time, the compression of cap rates (the required rate of return for real estate assets) increases the book value of Allos's mall portfolio and lowers its corporate borrowing costs.
How Does a Selic Rate of 11.25% Impact Investor Portfolio Allocation?
Bank of America's estimate of an 11.25% Selic rate in 2027 suggests an environment where post-fixed fixed-income investments will continue delivering double-digit nominal returns for some time, but with gradually lower real yields as the market prices in future rate cuts.
For retail investors, BofA's study reinforces the need to front-run the partial migration into equities before the rate-cut cycle is fully priced in by assets. Historically, Brazilian equities tend to anticipate interest rate declines, posting gains in the months leading up to and during the early stages of Central Bank rate cuts.
Risk warning: Long-term macroeconomic projections are subject to deviations caused by domestic fiscal uncertainties and shifts in the global economic landscape. BofA's recommendation reflects the institution's baseline scenario at the time of the analysis.
What to Monitor Going Forward?
For investors following Bank of America's thesis, the trajectory of interest rates should be tracked through four fundamental factors over the coming quarters:
- Copom Statements and Minutes: Signals from the Monetary Policy Committee regarding the pace of rate cuts and the terminal rate targeted by the Central Bank.
- Focus Report: The weekly evolution of financial market projections for inflation (IPCA) and the Selic rate through 2027.
- Corporate Earnings: The income statements of EQTL3, ECOR3, and ALSO3 to verify whether net financial expenses are already declining in quarterly reports.
- DI Futures Curve: The behavior of long-term DI interest rate contracts on the B3, which benchmark third-party capital costs for future debt issuances.
