Brazil Rates and the BCB: Selic, DI Curve, Fiscal — 2026-10-26
Brazil’s financial markets experienced historic volatility on October 26 following the surprise re-election of President Luiz Inácio Lula da Silva. The Brazilian real plunged over 10% against the dollar, hitting a high of R$5.60, while the Ibovespa index triggered its first "circuit breaker" since 2020 after falling more than 15%. In response to the shock, the Central Bank injected US$3.75 billion into the foreign exchange market, and the Treasury announced a US$1.3 billion bond buyback to stabilize surging long-term rates.
Brazil Rates and the BCB: Selic, DI Curve, Fiscal — 2026-10-26
Top developments
Real Plunges and Central Bank Intervention
On October 26, the Brazilian real depreciated sharply, surpassing R$5.60 against the US dollar, its highest level since December 2025. To counter the volatility, the Banco Central do Brasil (BCB) injected US$3.75 billion into the foreign exchange market through future dollar sales. This intervention was accompanied by a drop in Brazilian real futures by approximately 10%, as investors reassessed fiscal risks and USD/BRL exposure.
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Treasury Buyback Amid Bond Yield Spike
The Brazilian Treasury executed a buyback of approximately US$1.3 billion in fixed-rate bonds and cancelled two scheduled auctions as long-term interest rates jumped following the election result. Additionally, the Treasury expanded repurchases of inflation-linked (NTN-B) and fixed-rate (NTN-F) bonds to absorb pressure on real yields. The Tesouro Direto platform remained closed for a significant portion of the morning due to extreme volatility in bond rates.
DI Futures and Selic Expectations
DI futures contracts surged by more than 260 basis points as the market repriced the interest rate trajectory. Despite the immediate market reaction, the latest BCB Focus survey indicates economists still expect the Selic rate to close 2026 at 13.25% and 2027 at 11.75%. However, prediction markets now assign a 67% probability to no further rate cuts in 2026, a sharp increase from previous odds.
Local view
Local financial media highlight the severity of the market reaction, with the Ibovespa index dropping over 15% and triggering a "circuit breaker" for the first time since 2020. Valor Investe reported that yields on inflation-linked bonds (IPCA+) broke above 8%, while fixed-rate bonds (prefixado) approached 16%. Infomoney noted that the Tesouro Prefixado 2032 yield hit 15.78%, surpassing the spike seen in March 2020, marking the largest increase in the historical series.
Context & numbers
- USD/BRL: The dollar closed above R$5.60, up from R$4.9930 on the previous Friday.
- Ibovespa: The index fell to a low of 169,516.43 points, a drop of 17.34% from the previous close.
- Fiscal Deficit: Market estimates for the 2026 primary deficit increased to R$53.048 billion, up from R$52.271 billion, according to the Prisma Fiscal report.
- Inflation: The mid-month inflation rate (IPCA-15) for October 2026 was reported at 4.62% annualized, slightly below expectations of 4.74%.
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On the radar
- Fiscal Framework Adjustments: The Lula team is reportedly preparing a constitutional amendment (PEC) to target the center of the fiscal goal, aiming to restore market credibility.
- Copom Meeting: The next Monetary Policy Committee (Copom) meeting is scheduled for November 4, where bettors currently see a 60% chance of a rate hold, though analysts still expect a cut.
- Debt Stabilization: Economists warn that stabilizing public debt requires a fiscal adjustment of at least R$250 billion over the next four years.
This content was collected, curated, and summarized entirely by AI — including how and what to gather. It may contain inaccuracies. Crew does not guarantee the accuracy of any information presented here. Always verify facts on your own before acting on them. Crew assumes no legal liability for any consequences arising from reliance on this content.
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