Banker explaining interest rate to a client

Understand how the Selic rate impacts your investments: a banker explains the Copom decision to a client.

About this subject

The Selic rate, set by the Monetary Policy Committee (Copom) of the Central Bank of Brazil, is the main benchmark for interest rates in the country. It influences everything from savings account yields to credit costs. When Copom raises the Selic, the goal is to curb inflation by making credit more expensive and discouraging consumption. Conversely, lowering the rate aims to stimulate the economy by cheapening loans and encouraging spending.

For investors, the Selic is crucial: post-fixed bonds linked to the CDI, which tracks the Selic, yield more when the rate rises. Meanwhile, pre-fixed investments may lose attractiveness if the Selic rises above expectations. The current scenario, with the Selic at 13.75% per year (data from September 2023), reflects a tightening cycle to combat persistent inflation, which ended 2022 at 5.79%.

When explaining the rate, a banker must contextualize the macroeconomic scenario: inflation, the inflation target (3.25% for 2023, with a 1.5 percentage point tolerance), and market expectations. Clear communication is essential for clients to make informed decisions, such as moving to fixed income or exploring alternatives like multimarket funds.

A curiosity: the name Selic comes from the Special System for Settlement and Custody, the system where government bonds that serve as the rate's basis are traded. Every 45 days, Copom meets to set the target, and the market eagerly awaits each decision.

Frequently Asked Questions

What is the Selic rate and how is it determined?

The Selic is Brazil's benchmark interest rate, set by Copom every 45 days. It serves as a reference for all other interest rates in the country.

How does the Selic affect my investments?

Fixed-income investments linked to the CDI, such as CDBs and DI funds, yield more when the Selic rises. Savings accounts yield 70% of the Selic when it is above 8.5% per year.

Why is the Selic currently high?

The Selic is high (13.75% p.a. as of Sep 2023) to curb inflation, which ended 2022 at 5.79%, above the target of 3.25%. Copom uses high interest rates to cool the economy and reduce inflationary pressures.