Copom minutes reinforce caution (Image: Shutterstock)
O Banco Central released this Tuesday morning (24) the minutes of the last meeting of the Monetary Policy Committee (Copom). Last week, the monetary authority decided to raise the Selic by 0.25 percentage points (pp), to 10.75% per year.
In the minutes, the Committee highlights the resilience in activity, the pressures in the labor market, the positive output gap, the increase in projections for inflation and unanchored expectations demand a more contractionary monetary policy.
The weight of international in Selic
On the external side, the directors emphasize that the scenario remains challenging, due to the inflection point of the economic cycle in USA. This, according to them, raises greater doubts about the pace of deceleration, disinflation and, consequently, about the stance of the Federal Reserve (Fed).
Furthermore, they highlight that the central banks of the main economies remain determined to promote the convergence of inflation rates towards targets in an environment marked by pressures in the labor markets.
“The Committee assesses that the external scenario, also marked by less synchrony in monetary policy cycles between countries, continues to require caution on the part of emerging countries.”
What is worrying about the domestic scenario?
In the domestic scenario, the set of indicators economic activity and of the job market has shown greater dynamism than expected, which led to a reassessment of the gap towards the positive field.
“This pace of growth in activity, in a context of a gap now assessed as positive, makes the process of convergence of inflation to the target more challenging. The combination of a robust labor market, expansionary fiscal policy and vigor in granting credit to families continues to indicate support for consumption and consequently for aggregate demand,” they say.
Regarding the fiscalthey consider that market agents' perception of the growth of public spending and the sustainability of the current fiscal framework have relevant impacts on asset prices and expectations.
“A credible fiscal policy, based on predictable rules and transparency in its results, together with the pursuit of fiscal strategies that signal and reinforce the commitment to the fiscal framework in the coming years are important elements for anchoring inflation expectations and for reducing risk premiums on financial assets, consequently impacting monetary policy”.
The Committee has even incorporated into its scenarios a slowdown in the rate of growth of public spending over time.
Finally, in relation to the Broad National Consumer Price Index (IPCA), Copom's projections are for disinflation, but still with inflation above the target of 3% in the current relevant monetary policy horizon.
Projections for calendar years stand at 4.3% for 2024 and 3.7% for 2025. The projection for accumulated inflation over four quarters for the first quarter of 2026 is 3.5%.
The unanchoring of expectations is a common cause of discomfort for all members. “The Committee assesses that the conduct of monetary policy is a fundamental factor for the reanchoring of expectations and will continue to make decisions that safeguard credibility and reflect the fundamental role of expectations in inflation dynamics.”
Copom's next steps
In the minutes, as well as in the statement, Copom members do not commit to future strategies.
They simply state that the pace of future adjustments to the Selic rate and the magnitude of the cycle will be dictated by the “firm commitment to convergence of inflation to the target and will depend on the evolution of inflation dynamics, especially the components most sensitive to economic activity and monetary policy, inflation projections, inflation expectations, the output gap and the balance of risks”.
Check out the Copom minutes in full