The Brazilian government has unveiled almost R$190 billion in direct benefits to voters and businesses, with roughly R$118 billion—about 60%—structured as financial or extra-budgetary operations that circumvent the fiscal framework known as the arcabouço. The immediate market response, captured in the central bank’s Focus survey and B3 futures curves, has been a sharp repricing of interest-rate expectations: the Selic is now projected to end 2026 at 14.22%, rise to 14.70% in 2027, and remain above 14% for the next ten years. Analysts in São Paulo note that such a persistently elevated curve has not been observed since the administration of Dilma Rousseff.

The mechanism eroding confidence is the systematic use of off-budget channels—including the Desenrola debt-renegotiation programme and an expansion of the Minha Casa Minha Vida housing scheme—that allow the government to meet its formal primary-balance target while actual spending continues to rise. Public-accounts specialist Murilo Viana points out that the composition of public expenditure is already poor, with very little room for public investment, and that a real interest rate of 8–9% accelerates debt dynamics to an unsustainable pace. An XP Investimentos study by economist Marcos Mendes concludes that 100% of the expansionary measures ultimately affect public debt, even when they are designed to appear fiscally neutral.

This domestic fiscal strain unfolds amid a global inflation picture that remains fragmented. European fund managers surveyed by Bank of America still rank inflation as the top risk, with Candriam’s head of asset allocation warning that massive investments in artificial intelligence and constrained infrastructure capacity could become a third wave of price pressures, following tariffs and the oil shock. Yet the recent US-Iran truce and the retreat of Brent crude below $80 a barrel have led some investors to expect disinflation. In India, Reserve Bank of India minutes suggest that if oil prices fall further, growth could return to above 7%, and softer commodity prices would create downside risks to inflation forecasts. Brazil, by contrast, is generating its own fiscal inflation impulse at a moment when external conditions might otherwise offer relief.

The next factual milestone is the release of the Copom minutes, which markets hope will clarify the central bank’s rate outlook after a communiqué that was read as ambiguous. With the 2026 election cycle intensifying, the Mendes study notes that fiscal policy is being placed “at the service of the president’s re-election project, to the detriment of medium- and long-term economic stability.” The trajectory of public debt, rather than the headline primary deficit, will be the indicator to watch as off-budget operations continue to accumulate.