Brazil's central bank set to hold interest rate as markets await US midterm elections

Brazil's monetary policy committee will announce its decision on the benchmark Selic interest rate on Wednesday at 6:30 p.m. Analysts widely expect the central bank to halt the rate-cutting cycle that began in March and keep the rate at 13.5 percent per year.

The meeting takes place during a week shaped by US midterm elections and new labor-market data, both of which could influence financial markets in Brazil and abroad.

“The meeting gained weight because it is the first relevant economic policy decision after the election, at a time of very high uncertainty about fiscal policy.”

Brazilian markets have faced severe pressure since President Luiz Inacio Lula da Silva's re-election. The Ibovespa index suffered its worst weekly decline since March 2020, while the dollar rose and futures interest rates spiked.

Fixed-rate bonds recorded their largest daily rate increase since the series began in 2005. The National Treasury canceled auctions and repurchased securities to contain volatility.

Itaú and Bradesco both consider a rate pause likely. Itaú warns that inflation expectations are already unanchored, while Bradesco points to rising oil prices and a weaker real against the dollar as factors that could lift the central bank's inflation projections.

US voters will choose representatives for the House and Senate on Tuesday. The midterms occur halfway through Donald Trump's presidential term and could alter the balance of power in Congress, affecting the White House's legislative and economic agenda.

Vote counting may last several days, especially in tight races. Options traded on B3 show the probability of holding the Selic steady reached nearly 70 percent by Thursday's close, up from a minority position before the election.