The Monetary Policy Committee (Copom) of Brazil's Central Bank decided to reduce the benchmark Selic interest rate from 15% to 14.75% per year at its second meeting of 2026, marking the first cut after a prolonged period of holding rates at their highest levels since 2006. The decision, announced on Wednesday, signals the start of a monetary easing cycle eagerly awaited by financial markets and the productive sector.

The 0.25 percentage point reduction was justified by the committee based on moderating domestic economic activity and a resilient labor market. The Copom's statement acknowledged that, while both headline and core inflation remain above the established target, recent softening in indicators opens space for a gradual start to monetary loosening.

Inflation measured by the IPCA decelerated to 3.81% in annual terms in February 2026, but expectations from analysts surveyed in the Focus poll remain elevated, pointing to 4.1% by year-end 2026 and 3.8% for 2027 — both above the 3.25% target center set by the National Monetary Council.

The tightening cycle that brought the Selic to 15% began in September 2024, when the rate stood at 10.5%. The monetary squeeze was implemented aggressively over nine months, aimed at combating inflationary pressures from the dollar's appreciation, rising food prices, and unanchored market expectations. The rate remained unchanged at 15% from June 2025 until this meeting.

Sérgio Goldenstein, a former Copom member and current financial market analyst, characterized the reduction as potentially the beginning of a broader cutting cycle for 2026, though he cautioned that rising global geopolitical tensions — including the Middle East conflict and trade disputes between major powers — create unpredictability that could limit the speed and magnitude of future cuts.

Financial markets reacted positively to the decision. The Ibovespa rose in the following trading session, while futures interest rate contracts retreated, pricing in expectations that the Selic could end 2026 between 12% and 12.25% per year. Banking sector economists project between three and four additional cuts by year-end, depending on inflation trajectory and the external environment.

For businesses and consumers, the start of the cutting cycle represents gradual relief from credit costs, which reached record levels during the 15% interest rate period. The average bank spread for individuals exceeds 30 percentage points, making consumer credit among the most expensive in the world. The expectation is that the Selic reduction will begin to be reflected in final consumer rates starting in the second quarter.