02 - Interest Rates
Interest rates in Brazil have their own peculiarities. Understanding this market is very important in order to fully comprehend the dynamics of the Brazilian economy. The country’s main interest rate benchmarks are the Selic rate and the DI rate.
- Selic rate: is the basic interest rate of the Brazilian economy and is defined by the Monetary Policy Committee (Copom), the team responsible for conducting the Brazilian Monetary Policy in force. The committee meets every 45 days to set the rate, which is valid until the next meeting. The Selic rate is used as a reference for daily financing rates secured by government bonds and calculated by the Special System for Settlement and Custody (Selic).
- Selic Over rate: is the average adjusted rate for daily financing rates calculated by the Special System for Settlement and Custody (Selic) for government bonds.
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DI rate: is the average rate of interbank transactions carried out through interbank certificates of deposits. It is calculated based on fixed interbank deposits transactions settled within one business day.
- Inflation Rate
In Brazil, there is a number of inflation rate indices, but the official index is the Broad Consumer Price Index (IPCA).
- The IPCA reflects prices in major Brazilian metropolitan areas for goods and services using a weighted average of different price groups
- It is calculated by the Brazilian Institute of Geography and Statistics (IBGE)
- Collecting period: from the 1st to the 30th day of the reference month
- Interim rate released by Anbima twice a month
- Publication date: around the 10th of the following month (to the reference month)
- Target inflation used by COPOM for its inflation targeting and monetary policy
- Underlying index for NTN-B government bonds
- 252 Exponential Convention
Interest rates in international financial markets are based on 360 consecutive days comprising 12 months of 30 calendar days.
In Brazil, interest rates are based on a 252-business day year comprising 12 months of 21 business days, the so-called 252 exponential convention.
This format applies to the Selic rate and the DI rate. Capitalization occurs only on business days in the period between the investment date and the redemption date.
The table below shows the main conventions used by the market to calculate calendar and business days.
Interest Rate Base Year Calculation of number of days Approximate Correct 360 30/360 cd/360 365 30/365 cd/365 252 - bd/252 Relationship between Nominal and Real Interest Rate:
