Brazilian Real Steady After Selic Cut

The Brazilian real traded near R$5.15 per US dollar in September, little changed after the BCB cut the Selic rate by 25 basis points to 13.75%. The BCB left its next steps open, saying that the current environment of uncertainty calls for composure and caution in the conduct of monetary policy. It was the final monetary policy meeting before the presidential election in October. The decision was announced after the US Federal Reserve raised its federal funds target rate by 25 basis points to a range of 3.75% to 4.00%. The narrowing interest-rate differential is a factor supporting the dollar, although it had already been priced into markets, with both rate decisions coming in line with expectations. Meanwhile, gains by Flávio Bolsonaro in recent presidential election polls have supported the real, as markets view Bolsonaro as fiscally restrictive, while elevated domestic yields and weak business activity continue to weigh on the economic outlook.

The Brazilian real strengthened slightly to around 5.08 per US dollar in September, reaching a more than one-month high following lower-than-expected inflation data. Brazil’s annual inflation rate eased to 4.22% in August 2026 from 4.44% in July, slightly below forecasts of 4.27% and moving further within the central bank’s target range of 1.50%-4.50%. With the Selic elevated, upward pressure on real returns on bonds is increasing the attractiveness of fixed-income market to foreign investors seeking yield. Also, lower inflation reduces the country’s risk premium, boosting foreign investor confidence. However, the data raised bets that the BCB will cut the Selic by at next week’s Copom meeting. This would narrow the rate differential, as bets on a Fed rate hike remain high following US CPI coming largely in line with forecasts. Meanwhile, gains by Flávio Bolsonaro in recent presidential election polls have supported the real, as markets view Bolsonaro as fiscally restrictive.

The Brazilian real strengthened to around 5.09 per USD in September, reaching an over three-week high following the release of new polls on the 2026 presidential election. The polls showed President Lula and Senator Senator Flávio Bolsonaro in a technical tie in a potential October runoff. Markets view Bolsonaro as more fiscally restrictive, while elevated domestic yields and weak business activity continue to weigh on the economic outlook. Meanwhile, Brazil’s GDP expanded 0.5% in the second quarter of 2026, slightly above forecasts, driven mainly by agriculture. However, the detailed breakdown was weaker, suggesting economic momentum is fading despite a tight labor market and short-term demand stimulus measures. On the other hand, industrial production rose 0.2% month-on-month in July, rebounding after two consecutive monthly declines.