How the Selic Rate Shapes Your Investment Decisions

The Selic Rate represents the main monetary policy instrument of the Brazilian economy, directly affecting the profitability of your investment portfolio. The Central Bank of Brazil, through the Monetary Policy Committee (Copom), announces adjustments to this key rate every 45 days. The next meeting is scheduled for November 5 and 6, when the new level of this rate, currently at 10.75% per year, will be revealed.

Why the Selic Rate Matters to Every Investor

The Selic functions as the basic interest rate of the Brazilian economy, serving as a reference for virtually all financial operations in the market. When the Copom meets, its decision immediately impacts the returns on CDBs, Treasury Direct, stocks, and various other assets. In simple terms, this rate reflects the cost the government pays to raise funds through the sale of public bonds, establishing the floor for all other rates practiced in the financial system.

The main goal of these adjustments is to keep inflation under control. When prices rise rapidly, the Copom raises the rate to discourage consumption and credit. Conversely, during periods of economic slowdown, it lowers the rate to stimulate investments and activity.

The Cascading Effect on Fixed Income Assets

Investments in public and private bonds feel the immediate impact of changes in the Selic Rate. Products like Treasury Direct, CDBs, and LCI/LCA closely follow the CDI (Interbank Deposit Certificate), which moves in tandem with the Selic.

When the rate increases, financial institutions need to offer more attractive returns to attract resources, raising the profitability of these bonds. An investor who invests in Selic-linked Treasury, for example, sees their returns increase proportionally. In these scenarios, fixed income becomes particularly attractive for those prioritizing safety and predictable returns.

When the rate decreases, the scenario reverses. Bond yields drop significantly, pushing investors to seek higher-risk alternatives, such as multi-market funds or direct stock market investments, to maintain real gains above inflation.

Equities: An Inverse Movement to Interest Rates

The stock market operates in the opposite direction to fixed income when it comes to the Selic Rate. High interest rates tend to penalize stocks, while reductions benefit them.

When the Selic is high, companies face higher costs to raise funds and finance their operations. This increase in expenses pressures corporate profit margins, making stocks less attractive. Additionally, investors shift capital to fixed income investments, which now offer guaranteed and competitive returns.

In low Selic environments, corporate financing becomes more accessible. Companies expand their operations more easily, generating expectations of stronger future profits. This makes stocks much more attractive for those willing to take risks in pursuit of higher returns.

Real Estate Funds: Sensitivity to Credit Costs

Real Estate Investment Funds (FIIs), which invest in physical properties or assets linked to the real estate market, also fluctuate according to the Selic Rate, mainly because the real estate sector heavily depends on financing.

During periods of high Selic, credit for property acquisitions becomes expensive and less accessible. Demand for new developments decreases, impacting both prices and the appreciation of these funds. Investors tend to avoid FIIs in these phases, preferring the guarantees offered by fixed income.

When the Selic recedes, conditions change dramatically. Real estate credit becomes more accessible, encouraging individuals and companies to acquire properties. This increased demand benefits FIIs, which show better performance and attract new investments.

Strategy: Aligning Your Choices with the Economic Scenario

Understanding how the Selic Rate influences investments is just the first step. The real challenge is to adjust your strategy according to economic changes.

In high Selic scenarios, the ideal portfolio prioritizes fixed income and defensive assets. Public bonds and CDBs offer attractive returns with safety. Stocks and FIIs require greater caution, being more suitable for long-term investors who can wait through recovery cycles.

When the Selic Rate falls, it’s time to rebalance. Fixed income loses relative attractiveness but should not be completely abandoned—maintaining its role as a stabilizer. At the same time, increasing exposure to stocks and real estate funds can boost gains during periods of economic expansion.

However, it’s essential to avoid hasty decisions. Each change in the Selic Rate is not a signal to completely overhaul your portfolio. The focus should remain on aligning with your financial goals, investment horizon, return expectations, and personal risk tolerance.

Monitoring to Avoid Surprises

The Copom meets regularly every 45 days to determine the new level of the Selic Rate. These decisions are officially announced on the Central Bank of Brazil’s website on the same day as the meeting. Staying informed about these dates allows you to anticipate and adjust your positions before significant market changes.

The complete historical series of the Selic Rate is available in the Central Bank’s records, providing perspective on how this rate has evolved and helping you identify patterns in the responses of different assets.

Successfully investing in the Brazilian context requires constant attention to the macroeconomic scenario and, particularly, to movements of the Selic Rate. An active, informed, and disciplined management—respecting your specific objectives and risk tolerance—is the best way to maximize returns and protect your wealth over time.