What is Selic Rate

Central Bank of Brazil, interest rate decision (Central Bank of Brazil Interest Rate Decision)

The Selic Rate is the base rate for the Brazilian economy. The Monetary Policy Committee (COPOM) is responsible for setting this interest rate. Meetings are held eight times a year for this purpose. Virtually every interest rate calculation used by the market is based on the Selic rate, which is the main monetary policy reference of the Brazilian federal government. The Central Bank of Brazil (BCB) is tasked with keeping the Selic rate within the percentage set by COPOM. Her main goal is to control inflation, often having to intervene in the interbank market to achieve the goals set.

During the COPOM meetings, the prospects for the Brazilian economy will be discussed, such as: past and expected inflation, economic growth of the country, foreign exchange rate, foreign interest rate, level of credit activity and other topics. In the light of these discussions, they decide on the ideal level of the country's interest rate - whether to increase, decrease or maintain it.

In practice, in the day-to-day operation of the interbank market, the Selic rate is divided into two parts: Selic Meta and Selic Over.

The value of Selic Over represents the reality of the interbank market. Calculated daily, it is a weighted average of all financing transactions in the Brazilian interbank market, secured by federal securities and carried out in the Special System of Settlement and Custody (SELIC) in the form of repo transactions. At the end of the day, the weighted average interest rate of the traded volumes is calculated for all interbank loans.

In order to meet its obligation to maintain the interest rate balance, the central bank of Brazil operates in the primary and secondary markets, according to what the COPOM has set as the target for the Selic interest rate. The primary market comprises the purchase of government bonds by banks, the secondary market the central bank itself in this market.

If the central bank verifies that Selic Over is moving away from Selic Meta, the BCB will buy or sell public bonds on the open market if necessary so that the interest in the interbank market is within the Selic target and regulates the liquidity of the economy according to monetary policy.

Selic Meta serves as the basis for interbank transactions and the Selic Over results from the financing requirements between the banks. By increasing the number of investors for funding, Selic Over decreases. When there are more borrowers with bond portfolios, Selic Over rises. The price of Selic Over varies practically every day, and through the central bank's action on the interbank market, it stays near Selic Meta and maintains the equilibrium of the market.

The Selic Rate can affect:

  • The variable income.
  • Theoretically, a fall in the Selic interest rate favors the capital market as it improves access to credit.
  • A low interest rate indicates that the economy is in good shape.
  • When the market slows down, the Selic rate tends to increase, with a tendency to decrease consumption. As a result, among other negative consequences, the unemployment rate rises.
  • In the medium term, the variable income usually exceeds the fixed income related to the Selic rate.
  • From the consumer's point of view, the Selic interest rate is of great importance in terms of loans, financing and financial investments.

Graphic of the last values:

The graph of the entire available history of the macroeconomic indicator "Central Bank of Brazil Interest Rate Decision".

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