Focus Signals More Cuts in Selic: What Changes for Investors

The Focus Report released this Monday (21) by the Central Bank brought a significant change in market expectations. The median for Selic at the end of 2026 dropped from 13.75% to 13.50% per year, indicating that economists now expect at least one more interest rate cut by December. At the same time, the projection for the IPCA this year rose from 4.90% to 4.92%.

At first glance, these movements seem contradictory. Rising inflation should, in theory, halt the cycle of cuts. However, the numbers tell a more nuanced story, and understanding this dynamic is essential for those needing to make allocation decisions in the coming months.

Why the Market Started Projecting a Lower Selic Despite Rising Inflation

The adjustment in the Selic expectation is a direct reaction to the Copom's decision last week, which reduced the rate from 14.25% to 13.75%. The committee signaled room for the continuation of the easing cycle, and the market responded by incorporating another cut of 0.25 percentage points into the projections.

Inflation, in turn, remains at an uncomfortable level but shows signs of marginal deceleration. The expectation of 4.92% for the IPCA in 2026, although above the target of 3%, is below the 5.02% projected four weeks ago. In other words, the short-term trend is one of relief, even though the absolute level remains high.

This delicate balance between persistent inflation and weak economic activity is what has allowed the Copom to continue cutting. The projected GDP for 2026 has fallen to 1.88%, declining for the second consecutive week. For 2027, the estimate also decreased from 1.45% to 1.43%. It is a scenario of anemic growth that, historically, helps to contain inflationary pressures, as previous analyses from the portal have explored.

What the Focus Numbers Mean in Practice for Investors

With the Selic still at 13.50%, fixed income remains the protagonist. A CDB at 100% of the CDI delivers a gross return of about 13.50% per year, well above the projected inflation. Fixed-rate bonds, on the other hand, become more interesting in a falling interest rate scenario, as they allow locking in current rates before they decrease.

The 2029 Fixed Rate Treasury, for example, gains attractiveness if the market is correct about the Selic trajectory. Projections indicate a rate of 12% in 2027, 10.50% in 2028, and 10% in 2029. Those who buy a fixed-rate bond today lock in the current yield for the entire period, capturing the differential as interest rates fall.

For variable income, the scenario is more ambiguous. Falling interest rates usually benefit stocks, especially in sectors sensitive to credit, such as retail and construction. However, weak economic growth limits the potential for corporate profit expansion. The dynamics between interest rates and the stock market largely depend on the speed of cuts and the reaction of economic activity.

Stable Exchange Rate is the Most Underestimated Data from Focus

One point that deserves attention is the prolonged stability in exchange rate projections. The dollar remains projected at R$ 5.20 for the end of 2026, unchanged for several weeks. For 2027, R$ 5.28; for 2028, R$ 5.30; and for 2029, R$ 5.36.

This exchange rate anchoring is relevant for two reasons. First, a stable dollar alleviates inflationary pressures from imported costs, reinforcing the thesis that the Copom will have room to continue cutting. Second, it reduces expected volatility, favoring risk assets denominated in reais.

It is a consensus that could break quickly, of course. Any significant fiscal deterioration or external shock would put the exchange rate back in motion. But for now, the market shows relative comfort with the trajectory, something that has not been seen so clearly in recent quarters, as we have followed in recent coverage of the Brazilian macroeconomic scenario.

What to Expect from the Copom Minutes on Tuesday

The next catalyst for the markets is the Copom minutes, scheduled for this Tuesday (22). The document details the internal discussions of the committee and may reveal the degree of confidence of the directors in the continuation of the cutting cycle.

Three points deserve special attention. The first is the assessment of the risk balance: whether the Copom sees more risks of high or low inflation. The second is the mention of the output gap, the difference between actual GDP and potential GDP, which measures slack in the economy. The third is any signaling about the pace of upcoming cuts, whether 0.25 or 0.50 points.

If the minutes confirm a dovish tone (inclined to cut), future interest rates should decline, and fixed-rate bonds gain more traction. If the tone is more cautious, the market may give back some of the optimism reflected in this week's Focus.

The Long-Term Scenario Requires Caution

Inflation projections for longer horizons remain above the target. For 2027, the expectation is 4.30%. For 2028, 3.80%. Only in 2029 does the median approach 3.50%, still above the center of the target of 3%.

This suggests that the process of inflation convergence will be slow. The Central Bank may continue cutting in the short term, but it is unlikely to bring the Selic to levels much below 10% without inflation showing firmer signs of retreat. The real interest rate, nominal rate minus inflation, tends to remain elevated in historical terms.

For the investor, the practical implication is direct: fixed income remains the base of allocation, but diversification between post-fixed, fixed-rate, and inflation-linked bonds needs to be calibrated according to each individual's horizon. Betting everything in one direction, when inflation and Selic expectations move in opposite directions, is the type of decision that usually comes at a cost.

This content is informative and educational and does not constitute an investment recommendation. Past performance is not a guarantee of future results.