Brazil’s latest political and economic developments point to a shifting but still uncertain outlook: market expectations now lean toward easing inflation and the start of a new rate-cut cycle, while unemployment fell further in late 2025, with improvements concentrated in a handful of states. At the same time, the Supreme Federal Court moved to block new attempts to preserve illegal salary add-ons in the public sector, pressing Congress to set clear rules. On the international front, President Lula sought to deepen ties with India through a package of agreements focused on digital cooperation and critical minerals, as Brazilian exporters assess the impact of a new US tariff framework that, after a court ruling and subsequent announcements, would leave a 15% surcharge on Brazilian products.
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Interest Rates
Economists lowered their interest rate outlook for the first time in more than four months. In the Focus bulletin released on Monday (23/02), the expected Selic rate for 2026 fell by 0.12 percentage points to 12.13%, after holding at 12.25% for 18 weeks. Even so, analysts maintained their projection that the next Copom (Monetary Policy Committee) meeting will cut the benchmark rate from 15% to 14.5%, which would be the first reduction since May 2024, when the Selic rate fell from 10.75% to 10.5%. The Focus bulletin also showed inflation expectations easing again: the market now projects the IPCA (National Consumer Price Index) to end 2025 at 3.91%, down 0.04 percentage points from last week’s survey.
Unemployment
The unemployment rate fell in six Brazilian states in the fourth quarter of 2025, according to the Continuous Quarterly National Household Sample Survey (PNAD), released on Friday (20/02) by the Brazilian Institute of Geography and Statistics (IBGE). Nationwide, unemployment stood at 5.1% in the period, down from 5.6% in the previous quarter and 1.1 percentage points lower than in the same period of 2024, when it was 6.2%. Compared with the previous quarter, the unemployment rate declined in São Paulo, Rio de Janeiro, Pernambuco, the Federal District, Paraíba, and Ceará. In the other federative units, the indicator remained stable. The highest unemployment rates were recorded in Pernambuco (8.8%) and Amapá (8.4%), followed by Alagoas, Bahia, and Piauí, all at 8%. The lowest rates were found in Santa Catarina (2.2%) and in Espírito Santo, Mato Grosso do Sul, and Mato Grosso (2.4%).
Suspension of Benefits
Supreme Federal Court (STF) Justice Flávio Dino ruled on Thursday (19/02) that public servants are prohibited from issuing acts or publishing new laws intended to guarantee the payment of so-called illegal “perks.” The term refers to compensation, bonuses, and allowances added to public servants’ salaries. The justice minister aims to prevent the creation of specific rules designed to circumvent the suspension he ordered on 5 February, when he required the three branches of government to review and suspend payments exceeding the public-service salary cap. Dino also determined that the National Congress must pass a law to regulate the issue. Until then, the publication of new rules on the subject is prohibited. The objective is to curb excessive remuneration and ensure more balanced public spending.
Strategic Partnership
During a trip to India, President Lula (PT) stressed the importance of Brazil’s strategic partnership with the Asian country, arguing that closer ties strengthen the Global South and help ward off the specter of “another Cold War.” Standing alongside Indian Prime Minister Narendra Modi, Lula spoke during a state visit that, in the view of Brazilian diplomacy, elevates the bilateral relationship to a new level. While it is still unclear how this will translate into practical outcomes, initial steps were taken with the signing of eight agreements across various areas. Key items include a digital partnership and a memorandum of understanding on rare earths and critical minerals. Both countries have been seeking ways to develop more self-sufficient alternatives for processing these minerals, which are essential for technological manufacturing and remain highly concentrated in China.
Surcharge
The US Supreme Court’s decision to overturn President Donald Trump’s broad tariff package—followed by the announcement of a new global tariff of 10%—raised questions about how charges on Brazilian products exported to the United States will be affected. The tariff policy took on new dimensions on Saturday (21/02), when Trump announced that the rate would rise from 10% to 15%, under the limits of Section 122 of the Trade Act of 1974, which allows tariffs for up to 150 days before Congressional review. The new rates, scheduled to take effect at 00:01 (Washington time) on Tuesday (24), apply to all countries that trade with the US, with exceptions for certain products such as critical minerals, agricultural goods, and electronic components. In practice, the court decision annulled tariffs imposed under the International Emergency Economic Powers Act (IEEPA), including the reciprocal 10% tariffs announced in April of last year and the additional 40% surcharge on various Brazilian items announced in a letter Trump sent to President Lula in July 2025. Foreign trade expert Jackson Campos says that, after the ruling and the new announcement, the net result is a 15% surcharge on Brazilian products.
Analysis:
Brazil’s macroeconomic signals suggest a cautiously improving outlook, although not yet a decisive turning point. The downward revision in inflation expectations and the first cut in projected interest rates in months indicate that markets see room for monetary easing after a prolonged tightening cycle. With unemployment falling to 5.1 percent nationwide and reaching historically low levels in several southern and central states, domestic demand appears resilient. However, the concentration of labor-market gains in specific regions and the persistence of higher unemployment in parts of the Northeast highlight structural asymmetries. A rate-cut cycle, if confirmed, will need to balance supporting growth with preserving credibility in inflation targeting.
On the fiscal and institutional front, the Supreme Federal Court’s move to block new mechanisms designed to preserve salary add-ons reinforces judicial pressure for expenditure discipline. By requiring Congress to legislate clear parameters for public-sector compensation, the Court is intervening in an area that directly affects budget rigidity and long-term fiscal sustainability.
Externally, Brazil faces a dual dynamic of diversification and exposure. The effort to deepen strategic cooperation with India in digital governance and critical minerals aligns with a broader strategy to strengthen Global South partnerships. At the same time, the imposition of a 15 percent US tariff on Brazilian exports introduces renewed uncertainty for trade flows, particularly in sectors sensitive to price competitiveness.
Sources: G1 [1], [2], [3], [4]; O Globo [1], [2]; A Folha de SP.
