Brazil Selic Seen Falling in 2027 as Election Nears

Key Takeaways

• Bahia Asset’s Thiago Mendez expects Brazil to resume its interest-rate-cutting cycle in 2027, irrespective of the October presidential-election outcome.
• Mendez said the Selic could remain at 14% or fall, according to the August 3 Valor report.
• An opposition victory could prompt markets to price fiscal improvement, while a new Lula term could reduce the likelihood that 2026-scale stimulus is repeated.
• Mendez expects lower risk premiums along Brazil’s interest-rate curve to create opportunities in NTN-B inflation-linked government bonds and rate-sensitive equities.

A 2027 Selic-Cut View Takes Shape

Brazilian rates are the focus on August 3 after Thiago Mendez, partner responsible for multi-strategy and fixed-income funds at Bahia Asset Management, said a new Selic easing cycle is likely in 2027 regardless of the October election result. our research does not report a same-day move in USD/BRL, DI futures, Brazilian bonds, or the Ibovespa, so I cannot claim a verified price reaction. The event is the fresh August 3 publication of Mendez’s policy outlook in Valor International.

Mendez’s core call is conditional rather than immediate: he said the Selic may stay at 14% or decline and then continue falling next year. For traders, that distinction matters. This is not an announced Banco Central do Brasil decision, and it is not a new inflation print. It is a market participant’s view of how political and fiscal conditions may alter the expected policy path after the election.

I would treat the report as a medium-term rates narrative, not as proof of an intraday trade. Traders tracking central bank policy divergence in institutional flows should separate the verified facts in the interview from market pricing that is not supplied in our research.

Why the Election Can Reprice the Curve

The mechanism Mendez described runs through fiscal expectations and the risk premium embedded in interest rates. Under an opposition victory, he believes markets would quickly embrace the prospect of fiscal improvement. That prospect could lower the compensation investors demand for holding Brazilian duration, allowing risk premiums along the curve to decline.

Under a Lula re-election, Mendez’s reasoning is different. He argues that the scale of stimulus seen in 2026 would be unlikely to be repeated, potentially creating an environment more compatible with lower interest rates. In both cases, the route differs, but the conclusion is the same: a more favorable setting for easing in 2027.

That is the key analytical point. The outlook is not simply “election equals lower rates.” It is that either result could change the fiscal and stimulus assumptions investors use to value future Brazilian policy rates. Traders monitoring rate decision impact on professional traders should focus on whether campaign developments strengthen or weaken those assumptions.

Market Impact Snapshot

The table reflects scenario implications from our research, not verified market moves or price targets. Valor does not provide levels for USD/BRL, DI contracts, NTN-B yields, or equity benchmarks in the supplied text.

The Fed Backdrop Adds Another Layer

Mendez also described a separate rates episode in the United States. He said markets had assigned roughly a 30% probability of a Federal Reserve rate increase before last week’s decision after Kevin Warsh adopted a tough tone on inflation. Rates were ultimately left unchanged, according to the interview.

Mendez said investors bought dollars, U.S. real yields climbed to multi-year highs, and breakeven inflation fell as the market braced for a hawkish outcome. This is verified directional context, but our research supplies no levels or dates for those moves beyond the reference to last week’s decision.

For Brazil-focused traders, the connection is straightforward: U.S. rate uncertainty can influence global rate expectations and dollar demand, while Brazil’s domestic election narrative shapes the local curve. Those two forces can point in different directions. That makes it important to avoid assuming that a 2027 domestic easing view automatically translates into a near-term FX move.

What I Would Watch Into October

First, I would watch campaign developments for evidence that the market is beginning to price the fiscal-improvement scenario Mendez associates with an opposition win. Second, I would monitor signs that 2026 stimulus is moderating, because that is central to his lower-rate case under a Lula re-election.

Third, I would track actual Banco Central do Brasil communication and policy decisions. Mendez’s view is an informed forecast, not official guidance. No next meeting date, inflation release, or formal policy timetable is specified in our research, so I will not invent one.

For traders selecting an evaluation account around macro volatility, use a firm comparison for central bank event trading to assess which program fits the strategy rather than treating every rate narrative as a reason to increase leverage. The practical issue is whether the account allows your preferred execution around event risk and whether its restrictions are compatible with holding positions through volatile sessions.

Prop-Firm Considerations for Brazil Rate Trades

The current report is most relevant to prop traders who trade BRL-linked markets, Brazilian equity indices where available, or broader rate-sensitive risk sentiment. our research does not identify a sudden market move, so I would not frame this as a high-frequency news trade. It is better used as a framework for planning around the election and eventual policy repricing.

Before carrying exposure into central-bank or election-related headlines, review news event trading policies across prop firms. Restrictions can differ materially, including whether positions may be opened, closed, or held during specified news windows. A sharp repricing can also test daily loss limit policies, especially where correlated positions magnify losses.

Position size should reflect the fact that our research supplies no verified tradeable price levels. A position size calculator can help translate a defined invalidation point into exposure that fits the account’s limits. For traders who rely on event-driven gains, it is also reasonable to check payout timelines for traders capitalising on Interest rate cuts, because trading results and access to withdrawals are separate operational questions.

Finally, traders considering a new challenge because of this macro theme should examine funded account difficulty scores for current conditions. The right approach is not to chase an unverified move; it is to align time horizon, volatility tolerance, and account rules with a thesis that may take months to develop.

Frequently Asked Questions

What is Bahia Asset forecasting for Brazil interest rates

Thiago Mendez of Bahia Asset said he expects Brazil to resume an interest-rate-cutting cycle in 2027 regardless of who wins October’s presidential election. He said the Selic could stay at 14% or decline and continue falling next year.

Why could both election outcomes support lower Brazilian rates

Mendez said an opposition victory could lead markets to price fiscal improvement quickly. Under a Lula re-election, he believes the scale of stimulus seen in 2026 would be unlikely to be repeated, which could also support a lower-rate environment.

Which Brazilian assets could benefit if risk premiums decline

Mendez said lower risk premiums along the interest-rate curve could create opportunities in NTN-B inflation-linked government bonds and interest-rate-sensitive equities. our research does not provide market prices, yields, or confirmed same-day movements for those assets.

What did our research say about the latest Federal Reserve decision

Mendez said the market priced roughly a 30% probability of a rate increase before last week’s Fed decision after Kevin Warsh struck a tough tone on inflation. He said rates were left unchanged, after investors had bought dollars, U.S. real yields had risen to multi-year highs, and breakeven inflation had fallen.