The Copom unanimously decided to maintain the Selic rate at 6.50% p.a.
The following observations provide an update of the Copom’s baseline scenario:
Recent data on economic activity came in below expectations. Nevertheless, the Brazilian economy remains on a gradual recovery path;
The global outlook remains challenging. On the one hand, the risks associated with normalization of interest rates in some advanced economies have receded since the previous Copom meeting. On the other hand, the risks associated with a slowdown in global growth, as a result of several uncertainties, are more elevated;
The Committee judges that various measures of underlying inflation are running at appropriate or comfortable levels. This includes the components that are most sensitive to the business cycle and monetary policy;
Inflation expectations for 2019, 2020 and 2021 collected by the Focus survey are around 3.9%, 4.0% and 3.75%, respectively; and
The Copom’s inflation projections in the scenario with interest rate and exchange rate paths extracted from the Focus survey stand around 3.9% for 2019 and 3.8% for 2020. This scenario assumes a path for the Selic rate that ends 2019 at 6.5% p.a. and increases to 7.75% p.a. over the course of 2020. It also assumes a path for the exchange rate that ends 2019 at R$/US$ 3.70, and 2020 at R$/US$ 3.75. In the scenario with a constant interest rate, at 6.5% p.a., and a constant exchange rate, at R$/US$ 3.85*, the projections for 2019 and 2020 stand around 4.1% and 4.0%, respectively.
The Committee emphasizes that risks around its baseline scenario remain in both directions. On the one hand, (i) the high level of economic slack may lead to a lower-than-expected prospective inflation trajectory. On the other hand, (ii) frustration of expectations regarding the continuation of reforms and necessary adjustments in the Brazilian economy may affect risk premia and increase the path for inflation over the relevant horizon for the conduct of monetary policy. Risk (ii) intensifies in case (iii) the global outlook for emerging economies deteriorates. The Committee judges that the balance of risks is symmetric.
Taking into account the baseline scenario, the balance of risks, and the wide array of available information, the Copom unanimously decided to maintain the Selic rate at 6.50% p.a. The Committee judges that this decision reflects its baseline scenario for prospective inflation and the associated balance of risks, and is consistent with convergence of inflation to target over the relevant horizon for the conduct of monetary policy, which includes 2019 and, with gradually increasing weight, 2020.
The Copom reiterates that economic conditions prescribe stimulative monetary policy, i.e., interest rates below the structural level.
The Copom emphasizes that the evolution of reforms and necessary adjustments in the Brazilian economy is essential to maintain low inflation in the medium and long run, for the reduction of its structural interest rate, and for sustainable economic recovery. The Committee stresses that the perception of continuation of the reform agenda affects current expectations and macroeconomic projections.
In the Copom’s assessment, the evolution of the baseline scenario and of the balance of risks prescribes keeping the Selic rate at its current level. The Committee deems important to observe how the Brazilian economy will behave over time, with lower uncertainty and without the effects of the various shocks that hit the economy last year. The Copom judges that this assessment takes time and should not be completed in the short run. The Copom emphasizes that the next steps in the conduct of monetary policy will continue to depend on the evolution of economic activity, the balance of risks, and on inflation projections and expectations.
The Copom asserts that caution, serenity, and perseverance in monetary policy decisions, even in the face of volatile scenarios, have been instrumental in pursuing its primary objective of keeping the inflation path towards the targets.
The following members of the Committee voted for this decision: Roberto Oliveira Campos Neto (Governor), Bruno Serra Fernandes, Carlos Viana de Carvalho, Carolina de Assis Barros, João Manoel Pinho de Mello, Maurício Costa de Moura, Otávio Ribeiro Damaso, Paulo Sérgio Neves de Souza, and Tiago Couto Berriel.
*Value obtained according to the usual procedure of rounding the average R$/US$ exchange rate observed on the five business days ending on the Friday prior to the Copom meeting.