Brazil's Real Outperforms as Fed Tightens and Central Bank Stays Silent on November

Brazil's Central Bank and the Federal Reserve moved in opposite directions on the same Wednesday afternoon — and this monetary policy divergence between the two largest economies of the American continent defines, more than any other event, the tone of markets and Brazil's economic agenda this September 17.

The Copom cut the Selic rate for the fifth consecutive time, by another 25 basis points, bringing the benchmark to 13.75% per year — the lowest level since March 2025. The decision was unanimous and widely expected: of the 120 participants surveyed by Valor Econômico, 118 had projected exactly this move. The surprise came not from the cut itself, but from what the Central Bank chose not to say. The statement deliberately avoided any signaling about November, describing a "scenario characterized by significant increase in uncertainty, de-anchoring of expectations, and elevated risks," while at the same time acknowledging the need for "serenity and caution." Analysts consulted by Folha de S.Paulo attribute this strategic silence to concrete factors: El Niño's climate risk to agricultural prices, oil price volatility and, not least, uncertainty about what fiscal framework the government will adopt from 2027 onward. For Canvas Capital, "not closing the door to further cuts is a way for the BC to say the cycle continues." Aurélio Bicalho, of Vinland, was more direct: the moment is critical and the BC should have paused.

While the Copom was cutting, Kevin Warsh, the Fed's new chair, raised US rates for the first time since July 2023, taking the US benchmark to a range of 3.75% to 4%. Warsh's message was avowedly hawkish: inflation above the 2% target for more than five consecutive years, resilient domestic spending, and signaling of at least one more hike still in 2026. The immediate result was pressure on emerging-market assets — but Brazil responded in an unusual way. The dollar retreated slightly against the real, long-dated interest rate futures closed lower, and the real stood out positively relative to its peers, according to Valor Econômico. The Ibovespa, however, gave up 0.51%, ending the session at 185,547 points, dragged down mainly by Vale shares, whose trading volume reached R$3.8 billion.

This relative resilience of local assets coexists, paradoxically, with one of the most curious structural positions in the Brazilian economy: even after the fifth consecutive cut, Brazil remains at the top of the global real interest rate ranking. The Selic at a nominal 13.75%, net of inflation, still delivers fixed-income investors an extraordinary real return — which, in the reading of asset manager Kinea, encapsulates the trap of the local equity market. "The real discount isn't in stocks, it's in interest rates," the firm writes in a recent report. In dollar terms, listed companies' earnings are 36% below 2010 levels, and average annual growth has been negative over the past fifteen years. The Ibovespa trades at about 8 times projected earnings for the next 12 months, below the historical average of 10 times — not because companies are cheap, but because the cost of capital systematically compresses multiples.

The data point that most complicated the scenario for the Copom this week came before the meeting: the IBC-Br, the main GDP proxy calculated by the Central Bank, contracted 0.2% in July on a seasonally adjusted month-over-month basis, a sharper decline than the market expected. The economy lost momentum — which, in theory, opens space for additional cuts. But as columnist Solange Srour warned in Folha, slower growth alone is not enough for the Selic to fall much further. Current inflation, pressured by energy, exchange rates and supply shocks, does not automatically fade with a modest slowdown in activity.

In parallel with the monetary discussion, the Lula government executed a wide-ranging regulatory agenda. The enactment of the National Policy for Critical and Strategic Minerals — accompanied by R$5 billion in subsidies and the power to veto or place conditions on the participation of foreign companies in strategic sector assets — positions Brazil in the global race for lithium, rare earths, niobium and nickel, at a moment when Washington and Beijing are waging a battle for supremacy over these resources. Finance Minister Dario Durigan announced that the Eco Invest auction concluded on Wednesday will mobilize R$7 billion for projects in the critical minerals chain, part of a total volume of R$190 billion raised to finance the so-called "industry of the future." Simultaneously, the government is preparing rules to allow mineral exploration research without prior environmental licensing — a measure that speeds up prospecting, but is already beginning to generate debate over environmental governance.

The same logic of attracting foreign capital permeates the new data center law, also signed by Lula with tax incentives estimated at R$5 billion. The sector celebrates the advance as a platform for artificial intelligence infrastructure, but warns that the main bottleneck remains untouched: access to energy. This is no minor warning — it is precisely the scarcity of reliable energy and tariff predictability that determine where major global data center operators decide to invest. Aneel and ONS took a step in this direction by selecting five distributors — CPFL Paulista, Cemig, Copel, Energisa Mato Grosso and Neoenergia Elektro — to test control mechanisms over distributed solar generation, in an attempt to increase the predictability of the electric system.

The energy sector produced one of the most revealing stories about the contradictions of Brazilian economic policy. Petrobras, whose ADRs trade on the NYSE, announced a R$1 per liter increase in diesel sold at refineries — an increase immediately neutralized by a federal government subsidy of equal value, creating an accounting fiction in which the price rises and does not rise at the same time. The mechanism is transparent in its fiscal costs, but opaque in its long-term incentives: while rural producers in Rio Grande do Sul report physical diesel shortages — compared to crises experienced at the start of the war in Iran — the Dnit cancelled a R$74.8 million tender for dredging the Tapajós River, a project considered essential by agribusiness for grain outflow during dry periods.

The corporate credit environment under pressure is taking on increasingly sharper contours. Banks and law firms are reinforcing teams specialized in debt restructuring, as giants such as Casas Bahia, Braskem and Grupo Pão de Açúcar accumulate judicial or extrajudicial recovery proceedings. Braskem took the most visible blow of the week: its shares plunged more than 15% after UBS BB downgraded the stock from "neutral" to "sell" and cut the price target from R$10.50 to R$3.75 — a move that reflects the assessment that the petrochemical company has been more affected than its global peers by the prolonged downcycle in spreads. The Ibovespa absorbed this impact at an already delicate moment.

What to watch in the coming weeks: the November Copom meeting will be the first major test of the new "caution and serenity" stance signaled by the Central Bank — and its outcome will depend largely on the behavior of the exchange rate against a Fed signaling further hikes, the evolution of inflation expectations in the Focus survey, and the outcome of October's presidential elections, which still carry a high probability of redesigning the 2027 fiscal framework. Brazil and the United States will also meet at the WTO next week for bilateral consultations on the additional 25% and 12.5% tariffs imposed by the Trump administration in July — another external vector with the potential to interfere directly in the exchange rate and domestic price dynamics.

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