Vice President Geraldo Alckmin stated that approval of the fiscal adjustment package will reduce inflationary pressures in the country and create the conditions for lower interest rates, indicating that the decisive Senate vote is expected to take place this Tuesday.
What Did Geraldo Alckmin Say About the Fiscal Package and Interest Rates?
Vice President Geraldo Alckmin publicly affirmed that the consolidation of the fiscal package is the decisive step to ease inflation and allow the central bank to lower the Selic rate. According to Alckmin, the federal government has concluded the necessary legislative steps in the Chamber of Deputies and awaits the final deliberation of the Senate floor, scheduled for next Tuesday, to signal its commitment to public financial stability to the financial markets.
“The measure reduces inflation and opens room for lower interest rates in Brazil, ensuring predictability for productive investments.” Geraldo Alckmin, Vice President of Brazil
The vice president's statement aims to align the expectations of financial market participants following weeks of volatility in the yield curve. By directly linking spending containment efforts to the cost of credit, the government is attempting to anticipate the beneficial effects of the adjustment even before final promulgation. However, the financial market typically prices in the approval of reforms not only based on stated intentions, but on the actual effectiveness of the revenue projections and spending cuts presented in the bill.
Why Is the Government Betting on the Fiscal Package to Lower Interest Rates?
The economic team's logic rests on the traditional transmission channel from fiscal policy to monetary policy. When the government demonstrates an ability to control public debt, the country's risk perception declines, which lowers future inflation expectations and allows the central bank to ease the benchmark interest rate without endangering the inflation target.
However, market analysts emphasize that rate cuts do not happen automatically upon the announcement of optimistic speeches. As Gabriel Galípolo explained when addressing why the central bank does not control long-term rates, the longer maturities of the yield curve depend substantially on long-term fiscal confidence and institutional investors' demand for public debt securities, rather than solely on the decisions of the central bank's board at Copom meetings.
Furthermore, there is a substantial difference between the revenue projected by the government and the net fiscal impact perceived by private consultancies. As we highlighted regarding the adjustment of up to R$ 80 billion and XP's estimate of R$ 38.3 billion in permanent effect, the package's effectiveness in lowering the interest rate structure depends on how much of that figure stems from structural and ongoing spending cuts rather than extraordinary or one-off revenues.
What Is at Stake in Tuesday's Senate Vote?
The vote scheduled for Tuesday represents the final ordinary legislative stage for the package. The text arrives in the Senate following intense negotiations between party leaders and the Ministry of Finance to secure the necessary votes without watering down the core pillars of spending containment.
As we saw when the baseline text of the fiscal adjustment was approved in the Senate during preliminary reviews, maintaining the original format is essential to prevent the bill from returning to the Chamber of Deputies, which would delay implementation until the start of the next fiscal year. Any substantive changes introduced by senators would require a new review by federal deputies, prolonging the fiscal uncertainty that drives up risk premiums in the futures market.
The Senate ratifies the text without amendments, allowing for immediate enactment and immediate relief on the long-term yield curve.
Amendments to the text force a return to the Chamber of Deputies, extending volatility and keeping future rates elevated.
What Does Alckmin's Signal Change for Fixed-Income and Equity Investors?
For investors in the Brazilian market, Alckmin's remarks establish a short-term turning point for the behavior of risk assets and government bonds. If the government's optimism is confirmed by the Senate floor, the compression of the yield curve tends to benefit specific investment categories that have suffered under high rates.
As we observed in the reaction of Tesouro Direto bonds following statements on fiscal policy, announcements reinforcing fiscal rigor generate immediate appreciation in long-term fixed-rate and inflation-linked bonds (NTN-B / Tesouro IPCA+) due to the mark-to-market effect. When future interest rates fall, the unit price of these securities rises in the secondary market.
If you hold long-term fixed-rate bonds or Tesouro IPCA+ securities, the approval of the fiscal package could generate gains via mark-to-market pricing. Meanwhile, in the equity and brick-and-mortar REIT (FII) markets, lower interest rate projections reduce the discount rate applied to future cash flows, creating room for a recovery in the valuations of indebted companies and real estate funds.
Conversely, should the Senate vote bring unpleasant surprises—such as a delayed session, a reduction in the overall size of the package, or the inclusion of fiscal exemptions—the opposite trend is likely to prevail. In that scenario, floating-rate bonds (Tesouro Selic and CDs offering 100% of the CDI rate) remain the safest protection for short-term capital, guaranteeing returns without exposure to mark-to-market volatility.
What Are the Key Triggers to Watch in the Coming Days?
The week will be marked by political developments in Brasília and the financial market's reactions to the final promulgated text. Retail investors should monitor specific points to assess whether Geraldo Alckmin's optimism translates into a sustainable trend change for interest rates.
Senate vote outcome this Tuesday — Check whether the package was approved without riders that reduce the projected fiscal impact.
Behavior of future interest rates (DI contracts for Jan/29 and Jan/31) — Observe whether longer-term interest rate contracts on the B3 register a sustained decline following the outcome in Congress.
Central Bank's Focus Bulletin and Inflation Report — Track whether private analysts begin downwardly revising their Selic rate forecasts for the end of 2027.
Geraldo Alckmin's statement reinforces the political intention to deliver the fiscal adjustment still in November 2026, but the promise of lower interest rates depends entirely on the quality of the text approved in the Senate. Until the permanent value of the measures is confirmed by the market, a prudent stance is to maintain diversification in floating-rate fixed income, taking advantage of opportunistic entry points in inflation-linked bonds if mark-to-market gains materialize.
