Concern about more lasting impacts on inflation was a reason for divergence in the decision of the Central Bank’s Copom (Monetary Policy Committee), according to the minutes released this Tuesday (27).
Last Wednesday (21), the Copom decided to keep the basic interest rate (Selic) at 13.75%, interrupting the cycle of monetary tightening. The decision was not unanimous.
The director of International Affairs and Corporate Risk Management, Fernanda Guardado, and the director of Organization of the Financial System and Resolution, Renato Gomes, voted for a residual increase of 0.25 percentage point in the Selic.
The directors argued that, given the rise in inflation expectations for 2024, the uncertainty of the level of idleness in the economy and the strong pace of economic activity, the additional increase would strengthen the message of the committee’s commitment to its strategy.
“These members assess that the upside risks listed in the balance of risks could have more lasting impacts if they materialize, and suggest additional caution in evaluating the baseline scenario projections for the year 2024,” the document said.
Among the conditions that would push prices up, the Copom highlighted the persistence of global inflationary pressures, uncertainty about the country’s fiscal situation and pressure coming from the labor market.
Given the lag in the effects of monetary policy on the economy, the collegiate made its decision seeking the convergence of inflation “towards the target” next year and, to a lesser extent, in 2024.
Currently, the collegiate is using the 12-month accumulated inflation to the end of the first quarter of 2024 as a monetary policy horizon.
The objectives pursued by the BC for 2023 and 2024 –set by the CMN (National Monetary Council)– are 3.25% and 3%, respectively, with a tolerance of 1.5 percentage points more or less.
Market estimates for 2024 inflation began to deteriorate and reached 3.5%, according to the Focus bulletin released on the eve of the Copom meeting, compared to 3.3% at the August meeting, moving early away from the center. of the goal.
Caution and the need to evaluate, over time, the accumulated impacts to be observed from the “intense and timely” monetary policy cycle already undertaken weighed on the majority’s decision in favor of maintaining the Selic at 13.75%
In all, there were 12 consecutive increases between March 2021 and August this year, with an accumulated increase of 11.75 percentage points. This was the longest interest rate shock in the historical series and the most intense since the adoption of the inflation targeting regime in 1999.
In the minutes, the BC collegiate repeated that the future steps of monetary policy could be adjusted and that “it will not hesitate to resume the adjustment cycle if the disinflation process does not proceed as expected”.
The committee also said that it will remain vigilant and assess whether the Selic maintenance strategy “for a sufficiently long period” will be able to ensure the convergence of inflation.
In the domestic scenario, the BC highlighted robust growth in both consumption and investment. “The labor market continued to expand, although without complete reversal of the real drop in wages observed in recent quarters,” he said.
According to the committee, the analysis of some activity indicators, especially the labor market, led to a discussion about “if the output gap is narrower than the one currently used by Copom in its reference scenario”.
The output gap measures the difference between the economy’s potential and actual growth, and the labor market situation is one of the thermometers for estimating this difference.
In the Copom reference scenario, inflation projections dropped from 6.8% to 5.8% this year and remained at 4.6% for 2023. For 2024, the collegiate marginally raised the forecast from 2.7% to 2023. 2.8%.
In an alternative exercise carried out by the collegiate, assuming that the output gap would be at level zero in the third quarter, inflation projections would be 4.9% and 3.0% for 2023 and 2024, respectively.
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