Moody's: Selic at 13,75% to remain elevated for longer without fiscal adjustment
The Selic rate, currently at 13,75% a year, should remain elevated for longer if President Luiz Inácio Lula da Silva's government does not advance with fiscal adjustment measures, Moody's Ratings said in a report released this week after the president's re-election. The agency expects Lula's fourth term to keep the current fiscal framework, with small and gradual adjustments focused on the primary result, growth, higher revenue and spending efficiency.
Moody's said that stance is at odds with the Central Bank's monetary policy, describing Brazil's fiscal policy as excessively expansionist and a factor keeping inflation under pressure and making interest rate cuts harder. "Como resultado, esperamos que a taxa básica de juros Selic, atualmente em 13,75%, permaneça elevada por mais tempo, até que sejam adotadas medidas claras em direção à consolidação fiscal", the agency said in an excerpt of the report. It estimated that Brazil would need a primary surplus of 2% to 3% of Produto Interno Bruto to stabilise the debt-to-Produto Interno Bruto ratio, a scale it said would not be possible without reforms.
Interest costs of roughly 20% of general government revenue turn primary deficits near 0,5% of Produto Interno Bruto into nominal deficits of 8% to 9% of Produto Interno Bruto, Moody's said. Gross general government debt rose from about 72% of Produto Interno Bruto at the 2022 presidential election to around 83% now, according to the agency. The Tesouro Nacional projected in April 2026 that gross debt would reach about 86% of Produto Interno Bruto in 2027 and a peak near 88% in 2029 before a gradual decline, and Moody's warned the ratio could rise further without significant fiscal adjustment.
Politics complicate the fix. Moody's expects relations between the executive and Congress to become more challenging after the 2026 elections, with the opposition Partido Liberal rising to 28 of 81 Senate seats and 121 of 513 Chamber of Deputies seats from 2027. More than 90% of public spending is determined by law, limiting cuts without legislative changes, and the agency said it will watch the formation of the new economic team and the 2027 budget for a credible medium-term consolidation path. For now, Lula's re-election leaves Brazil's Ba1 rating and stable outlook unchanged, Moody's said.
