Brazil cuts the Selic to 13.75% as the Fed hikes, narrowing the rate gap

Brazil’s central bank lowered the Selic for a fifth straight meeting on Wednesday, taking the policy rate to 13.75% in a unanimous vote after the New York cash close, 18 days before the first round of Brazil’s presidential election. Copom then refused to say how much easing is left.

The same afternoon in Washington, the Federal Reserve raised the federal-funds target range by 25 basis points to 3.75%-4.00%. The two decisions, hours apart and in opposite directions, shrank the simple gap between the Selic and the U.S. policy rate by 50 basis points, to 9.75 to 10.00 percentage points. That is a difference between two official policy rates, not a return anyone booked on Wednesday. U.S.-listed funds that hold Brazil had already closed; their prices are not a mark on 13.75%.

Copom’s fifth cut, and no terminal rate

The cut matched the Reuters poll: 48 of 51 economists had expected it. Copom said the “total magnitude of the calibration cycle will be established in light of new” information, and that a setting of higher uncertainty, unanchored inflation expectations, and elevated risks “demands serenity and caution” in the conduct of policy. It did not name a next-meeting decision, a pause, or a stopping point.

Analysts are already split on what that silence means. Veja, surveying desks into Wednesday’s meeting, reported that XP still sees room for two more 25-basis-point reductions, taking the Selic to 13.25% by year-end, while BTG Pactual and Itaú BBA expect a pause. BTG puts the 2026 year-end rate at 13.75% and 2027 at 12.5%. Itaú said a temporary pause, then a re-evaluation, still looks the better strategy.

Copom held the Selic at 15.00% in January, then cut 25 basis points at each of the March, April, June, August, and September meetings, a 125-basis-point decline from the 15.00% starting level. Valor Econômico called Wednesday the last scheduled meeting before the vote. Brazil’s electoral court has set the first round for Sunday, October 4, and a runoff, if needed, for Sunday, October 25. The next Copom gathering is November 3-4, after the ballots.

The inflation arithmetic is why the committee will not sprint. IBGE reported on September 11 that August IPCA, Brazil’s headline consumer-price index, fell 0.32% on the month. Over 12 months the index is up 4.22%, and 3.11% year to date. The continuous target is 3.00%, with a tolerance band of 1.5 percentage points, so the ceiling is 4.50%. Twelve-month inflation is inside that band. The central bank’s Focus survey published Monday, September 14, put the median 2026 IPCA at 4.90%, still above the ceiling, and 2027 at 4.30%. The same survey put the year-end Selic at 13.75% and the 2027 year-end rate at 12.00%, in line with BTG and Itaú, not XP. Those are analyst medians, not Copom’s forecast.

The committee also said it is still watching how domestic fiscal policy feeds into monetary policy and asset prices. It described activity as moderating gradually, especially in more cyclical sectors, with the labor market still tight.

The Fed’s 25-basis-point hike

The Federal Open Market Committee voted 12-0 at 2:00 p.m. ET to lift the funds rate to 3.75%-4.00%, citing elevated inflation and saying the move would support a “timelier return” to its 2% goal. Its Summary of Economic Projections put the median federal-funds rate at 4.1% for both 2026 and 2027, and 3.2% in the longer run. In June that 2026 median had been 3.8%. The new midpoint of the target range is 3.875%. The dots sit above it.

The U.S. 10-year Treasury par yield was 5.01% on Wednesday’s curve.

The dollar index was at 100.34, up 0.73%, as of 6:04 p.m. ET.

iShares MSCI Brazil ETF AEWZ, which tracks large- and mid-cap Brazilian stocks and is graded A in etf.net’s Brazil category, finished at $37.48, down 0.79%. Franklin FTSE Brazil ETF AFLBR, a FTSE Brazil tracker, closed at $23.39, down 0.85%. iShares MSCI Brazil Small-Cap ETF BEWZS rose 0.64% to $13.18. The Ibovespa was at 185,314, down 0.64%, as of 3:44 p.m. ET, still in the São Paulo session and still before Copom’s statement.

Wednesday’s large-cap move was Petrobras, Vale, and Nu. The two Petrobras lines in AEWZ are 14.7% of the fund; together they subtracted 0.57 percentage points from Wednesday’s return. Nu Holdings, 8.8%, subtracted 0.24 percentage points. Vale, the largest holding at 9.3%, subtracted 0.20 percentage points. Across 45 priced holdings covering 97.6% of assets, the book subtracted 0.87 percentage points against a 0.79% fund decline. AFLBR is more of an oil-and-ore fund: its two Petrobras lines are 17.4%, Vale is 10.4%, and it does not carry Nu in the top 10.

The table is a pre-statement snapshot. The last two rows are the wrappers that hold Brazilian duration, and only as thin lines in a broader emerging-market book.

Local-rate exposure is a slice, not a Brazil fund

A holder looking for the Selic itself does not get it from AEWZ. The local-rate channel runs through Brazilian Treasury notes inside broader emerging-market bond funds. VanEck J.P. Morgan EM Local Currency Bond ETF AEMLC has Brazil Notas do Tesouro Nacional as its largest single line at 0.96% of assets. Eight Brazilian Treasury lines among the top 50 holdings totaled 4.7% as of Wednesday. The fund slipped 0.44%.

iShares J.P. Morgan USD Emerging Markets Bond ETF AEMB is dollar sovereigns, 6.4 years of effective duration, Brazil as a single 6.63% 2035 line at 0.37% of assets in the top 50. It rose 0.08%.

Copom’s minutes are due Tuesday, September 22. The next IPCA-15 print is on September 25. Itaú already calls a pause at 13.75% the more likely path, citing inflation risks for 2027 and the chance the real depreciates after the October 4 vote. XP’s 2027 rate, which it puts at 11.50%, depends in the firm’s own note on the next government’s fiscal policy. The November 3-4 meeting is the first that will sit with a known election result.