IPCA-15 Data Reinforces Expectations of 14% Peak Interest Rate in Brazil

In a complex economic landscape, Brazilian interest rates remained largely unchanged on Tuesday. This stability comes as markets process the latest inflation data and anticipate government spending cuts.

The interest rate curve suggests that the basic interest rate may peak at 14% per year, reflecting a cautious approach to monetary policy.

The Interbank Deposit (DI) contract rates for January 2026 closed at 13.270%, barely moving from the previous day’s 13.275%. Similarly, the January 2027 contract ended at 13.32%, down slightly from 13.33%.

The January 2029 contract saw a minor decrease, closing at 13.08% from 13.11%. These figures indicate a market that has already priced in much of the fiscal uncertainty.

The lack of movement also suggests that the recent inflation data, known as IPCA-15, has reinforced existing expectations. Investors now anticipate three 0.75 percentage point increases in the Selic rate at upcoming meetings.

Economic Insights

Nicolas Borsoi, chief economist at Nova Futura, believes the IPCA-15 data strengthens the case for accelerated monetary tightening. However, Rafael Passos from Ajax Asset offers a nuanced view.

He notes that beyond headline figures, core inflation shows marginal improvement. The longer-term interest rates diverged from U.S. Treasury yields, maintaining a downward bias.

This trend reflects the market’s view that current rates already account for fiscal uncertainties. The Brazilian real’s strong performance among emerging market currencies also supported this easing.

Currency traders attribute the real’s resilience to the expected announcement of spending cuts. While the dollar closed at R$5.8081, up 0.04%, other currencies like the Mexican peso saw larger depreciations against the U.S. dollar.

As markets navigate these complex factors, investors remain alert to potential shifts in fiscal policy and their impact on interest rates and currency values. The coming days may bring further clarity as the government unveils its spending plans.

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