BCB COPOM Minutes - Meeting 249
Central bank: bcb | Type: minutes | Date: 2022-09-20

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Minutes of the Meeting of the
Monetary Policy Committee — Copom
September 20-21, 2022
249th
249th Meeting
COPOM
September 20-21
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he Copom members analyzed the recent performance and prospects for the Brazilian and
international economies, under the monetary policy fra mework, whose objective is to comply with
the inflation targets established by the National Monetary Council. T his document represents
Copom's best effort to provide an English version of its policy meeting minutes. In case of
inconsistency, the Portuguese version prevails.
Date: September 20-21, 2022
Place: BCB Headquarters’ meeting rooms on the 8 th floor (9/20 and 9/21 on the morning)
and 20th floor (9/21 on the afternoon) – Brasilia – DF – Brazil
Starting and ending
times:
September 20: 9:46 AM – 11:47 AM; 2:11 PM – 6:12 PM
September 21: 10:10 AM – 11:06 AM; 2:32 PM – 6:34 PM
In attendance:
Copom Members Roberto de Oliveira Campos Neto – Governor
Bruno Serra Fernandes
Carolina de Assis Barros
Diogo Abry Guillen
Fernanda Magalhães Rumenos Guardado
Maurício Costa de Moura
Otávio Ribeiro Damaso
Paulo Sérgio Neves de Souza
Renato Dias de Brito Gomes
Department Heads in
charge of technical
presentations
(attending on 9/20 and
and on the morning of
9/21):
Alan da Silva Andrade Mendes – Department of Foreign Reserves
André Minella – Research Department (also present on the afternoon of 9/2 1)
André de Oliveira Amante – Open Market Operations Department
Fabia Aparecida de Carvalho – Department of International Affairs
Ricardo Sabbadini – Department of Economics
Rogério Antônio Lucca – Department of Banking Operations and Payments System
Other participants
(attending on 9/20 and
on the morning of
9/21):
Arnildo da Silva Correa – Head of the Office of Economic Advisor
Edson Broxado de França Teixeira – Head of the Deputy Governor for Supervision’s Office
Eduardo José Araújo Lima – Head of the Deputy Governor for Economic Policy’s Office
Euler Pereira Gonçalves de Mello – Deputy Head of the Research Department
Fernando Alberto G. Sampaio de Cavalcante Rocha – Head of the Department of Statistics
Flavio José Roman – General Counsel
Gilneu Francisco Astolfi Vivan – Head of the Financial System Monitoring Department
Julio Cesar Costa Pinto – Head of the Deputy Governor for Monetary Policy’s Office
Leonardo Martins Nogueira – Executive Secretary
Mariane Santiago de Souza – Head of the Governor’s Office
Mauro Zanatta – Press Office Advisor
Olavo Lins Romano Pereira – Deputy Head of the Department of International Affairs
Pedro Henrique da Silva Castro – Deputy Head of the Department of Economics
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COPOM
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A) Update of economic outlook and Copom’s scenario1
1. The global environment remains adverse and volatile, with continued downward
revisions on prospective growth in the major economies, especially in China. The data
released since the previous Copom meeting reinforce the view that the U.S. labor
market, as well as in other advanced economies, remains heated. However, the reversal
of countercyclical policies in major economies, the persistence of the war in Ukraine
with its consequences on natural gas supplies to Europe, and the continuation of the
Covid -19 policy in China reinforce a prospect of a slowdown in global growth in the
coming quarters.
2. The inflationary environment remains challenging. There is an incipient normalization
in supply chains and an accommodation in the prices of major commodities in the recent
period, which should lead to a moderat ion in global goods -related inflationary
pressures. On the other hand, the low degree of slack in the labor market in these
economies suggests that inflationary pressures in the sector of services might take long
to dissipate.
3. The process of normalization of monetary policy in advanced economies continues
towards contractionary rates in a synchronized way across countries, impactin g
economic growth expectations, and raising the risk of abrupt repricing movements in
the markets. The Committee continues to monitor the risks related to the global
slowdown and the increase in risk aversion in a highly pressured inflationary
environment.
4. As for the domestic outlook, second quarter GDP came stronger than expected.
Robust growth was observed in both consumption and investment. Moreover, the set
of indicators released since the previous Copom meeting still suggests that the
economy kept growing at the margin, albeit more moderately. Besides, the labor
market continued to expand, although not completely reverting the real income decline
observed in recent quarters.
5. Despite the recent reduction in prices of more volatile items and the impacts of tax
measures, consumer inflation remains high. The recent rele ases have been strongly
influenced by the reduction in administered prices, due to both the decrease in taxes
and, to a lesser extent, the drop in international fuel prices. In addition, items related to
industrial goods, reflecting the decrease in producer prices and the reduction of
pressures in global value chains, also showed an incipient decline. However, the
inflation of the components more sensitive to the economic cycle and the monetary
policy, which present greater inflationary inertia, remain above the range compatible
with meeting the inflation target. Inflation expectations for 2022, 2023, and 2024
collected by the Focus survey are around 6.0%, 5.0%, and 3.5%, respectively.
B) Scenarios and risk analysis
6. In the reference scenario, the interest rate path is extracted from the Focus survey,
and the exchange rate starts at USD/BRL 5.202 and evolves according to the purchasing
power parity (PPP). The Committee assumes that oil prices follow approximately the
futures market curve for the following six months and then start increasing 2% per year
onwards. Moreover, the energy flag is assumed to be “green” in December 2022, and
“yellow” in December 2023 and 2024. In this scenario, Copom’s inflation projections
stand at 5.8% for 2022, 4.6% for 2023, and 2. 8% for 2024. Inflation projections for
administered prices are -4.0% for 2022, 9.3% for 2023, and 3.7% for 2024. The
Committee decided again to emphasize the six-quarter-ahead horizon, which reflects
Unless explicitly stated otherwise, this update takes into account changes that occurred since the Augus t
Copom meeting (248
meeting).
V alue obtai ned according to the usual procedure of roundi ng the average USD/BRL exchange rate observed
on the five business days ending on the last day of the week befo re the Copom meeting.
249th Meeting
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the relevant horizon, mitigates the primary effects from the tax changes but
incorporates their second -round effects. On this horizon, which refers to the first
quarter of 2024, the twelve-month inflation projection stands at 3.5%. The Committee
judges that the uncertainty in its assumptions and projections is higher than usual.
7. Given the persistence of the inflationary process and the rise in inflation projections
in several economies, the Committee assesses that the risk of a sharper deceleration in
global economic activity has increased. This perception is reinforced by the monetary
policy responses required to ensure the reanchoring of inflation, as well as the
determination present in the communication from major central banks to reduce
inflationary pressures.
8. The Committee assesses that a more tightening global monetary policy stance would
have a disinflationary impact in Brazil in the medium term, as it leads to a widening of
the global gap and less pressure on the prices of commodity and goods in general.
However, it points out that the possible im pacts of such repricing on assets in the short
term add uncertainty about the effect on Brazilian inflation.
9. Measures of the degree of slack in the economy have great uncertainty. Currently,
the analysis of some activity indicators, especially in the labor market, has led to the
discussion if the output gap is narrower than that currently used by Copom in its
reference scenario. In an alternative exercise assuming that the output gap would be at
zero in the third quarter of 2022, inflation projections would be 4.9% and 3.0% for 2023
and 2024, respectively.
10. The Committee discussed the transmission channels and the effect of monetary
policy on activity. Copom assessed that the pass-through of the Selic rate to the final
rates of different types of credit has occurred as expected, although new corporate
credit remain more robust than expected. The Committee continues to evaluate that a
large part of the impact of monetary policy is still to be observed, both in economic
activity and inflation, and that there was no substantial change in the transmission
channels of monetary policy.
11. The Committee discussed the pace of disinflation of services and how inflation of
less volatile items would behave in the coming quarters. It evaluated that there are
several factors that may affect the path of services inflation, among them the drop in
current inflation itself, which reduces the inertial effect on these items, and the more
positive projections for economic activity , which raises the risk of more persistent
pressures in this segment. In this regard, the Committee believes that continued
monitoring of these factors is necessary to assess whether the maintenance o f interest
rate rates for a sufficiently long period will be enough to ensure inflation convergence.
12. In the domestic scenario, Copom believes that the permanent increase in spending
and the uncertainty about its trajectory from next year on may increase the country's
risk premia and inflation expectations as they put pressure on aggregate demand and
worsen the fiscal path expectations. The Committee reiterates that there are several
channels by which fiscal policy may affect inflation, including its effect o n a ctivity, asset
prices, degree of uncertainty in the economy, and inflation expectations.
13. The Committee discussed the movements in inflation expectations in the Focus
survey since the August Copom meeting. There has been a drop for 2023, but much of
the movement observed is in items related to administered prices, possibly due to
uncertainty about the tax recomposition of federal taxes. However, the median of
inflation expectations for 2024 rose since the previous Copom meeting, even though
the average has been more stable. Some members of the Committee emphasized that
there was an increase in longer-term expectations in much of the emerging countries,
reflecting the magnitude and persistence of the global shocks still underway. Finally, all
members agree that it is the monetary authority's primary and fundamental role to
conduct a monetary policy consistent with the anchoring of longer-term expectations,
continuously strengthening its credibility, and reducing the future disinflationary cost.
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14. The Co mmittee emphasizes that risks to its scenarios remain in both directions.
Among the upside risks for the inflationary scenario and inflation expectations, it should
be emphasized (i) a greater persistence of global inflationary pressures; (ii) the
uncertainty about the country's future fiscal framework and additional fiscal stimuli
that support aggregate demand, partially incorporated in inflation expectations and
asset prices; and (iii) an output gap tighter than the currently adopted by the
Committee in its reference scenario, especially in the labor market. Among the
downside risks, it should be noted (i) an additional reduction in the prices of
international commodities measured in local currency; (ii) a greater than projected
deceleration of global economic activity; and (iii) the continuity of tax cuts assumed to
be reversed in 2023. The Committee assesses that the still uncertain and volatile current
scenario requires serenity when evaluating risks.
C) Discussion about the conduct of monetary policy
15. Copom discussed the conduct of monetary policy, considering the set of projections
evaluated, as well as the balance of risks for prospective inflation.
16. The twelve-month inflation projection for the first quarter of 2024, in the scenario
using the interest rate trajectory extracted from the Focus survey, remains consistent
with the strategy of inflation convergence to around the target over the relevant
horizon. Moreover, the Committee continues to consider that inflation projection for
2024 is also around the target. This assessment reflects the lower-than-normal v isibility
of the prospe ctive scenario, which increases the uncertainty of the specific projections
communicated by the Committee over longer horizons.
17. The Committee decided again to emphasize the six-quarter-ahead horizon for its
projections, and stresses that this decision is conditional on the temporary nature of the
taxes. Copom anticipates that, if the alternative scenario of maintaining tax exemption
on fuels in 2023 materialize, it will again emp hasize horizons that include the first
quarter of 2023. However, it assesses that there will be no relevant impacts on the
conduct of monetary policy since the primary effects of such measures are already
being disregarded.
18. Copom opene d the discussi on by evaluating the adjustment cycle carried out up to
this meeting. It was emphasized that the current monetary tightening cycle has been
quite intense and timely and that, due to the long and variable monetary policy lags,
much of the expected contractionary effect and its impact on current inflation are still
to be seen. These impacts should become clearer in the activity indicators throughout
the second half of the year, but the Committee anticipates that measures to sustain
aggregate demand hinder a m ore precise evaluation about the stage of the economic
cycle and the impacts of monetary policy.
19. Copom then debated the monetary policy options for this meeting. The options to
raise the base interest rates by 0.25 p.p. and to maintain it were widely debated. On the
one hand, the additional interest rate increase would reinforce the vigilance stance and
reflect the observation of a stronger than expected activity. On the other hand, caution
and the need to evaluate, over time, the cumulative effects to be observe d o f the
intense and timely monetary policy cycle already undertaken would be in favor of the
maintenance. Therefore, most of the Committee members assessed that, given the
data released, projections, inflation expectations, the balance of risks, and the lags of
the effects of the monetary policy already in significantly contractionary territory, it was
appropriate to maintain the interest rate at the level of 13.75% p.a. The Committee
reinforced that it is necessary to remain vigilant, assessing if the strategy of ma intaining
the Selic rate for a sufficiently long period will be enough to ensure the convergence of
inflation.
20. Two Committee members voted for a residual adjustment of 0.25 p.p on the Selic
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rate. These members argued that the additional increase would strengthen the
Committee’s message of commitment to its strategy, given the rise in inflation
expectations and the projection in the reference scenario for 2024, in an environment
of uncertainty about the level of the output gap and the dynamics of activity. These
members consider that the upside risks listed in the balance of risks may have longer-
lasting impacts if they materialize, suggesting additional caution in assessing the
reference scenario projections for the year 2024.
21. The Committee unanimously emphasizes that it will persist until the disinflationary
process consolidates and inflation expectations anchor around its targets. The
Committee emphasizes that it will not hesitate to resume the tightening cycle if the
disinflationary process does not proceed as expected.
D) Monetary policy decision
22. Considering the assessed scenarios, the balance of risks, and the broad array of
available information, the Copom decided to maintain the Selic rate at 13.75% p.a. The
Committee judges that this decision reflects the uncertainty around its scenarios for
prospective inflation, an even higher-than-usual variance in the balance of risks and is
consistent with the strategy for inflation convergence to a level around its targ et
throughout the relevant horizon for monetary policy, which includes 2023 and, to a
lesser extent, 2024. Without compromising its fundamental objective of ensuring price
stability, this decision also implies smoothing of economic fluctuations and fosters full
employment.
23. The Committee will remain vigilant, assessing if the strategy of maintaining the Selic
rate for a sufficiently long period will be enough to ensure the convergence of inflation.
The Committee emphasizes that it will persist until the disinflationary proces s
consolidates and inflation expectations anchor around its targets. The Committee
reinforces that future monetary policy steps can be adjusted and will not hesitate to
resume the tightening cycle if the disinflationary process does not proceed as expected.
24. The following members of the Committee voted for this decision: Roberto Oliveira
Campos Neto (Governor), Bruno Serra Fernandes, Carolina de Assis Barros, Diogo A bry
Guillen, Maurício Costa de Moura, Otávio Ribeiro Damaso, and Paulo Sérgio Neves de
Souza. The following members voted for a residual adjustment of 0.25 p.p: Fernanda
Magalhães Rumenos Guardado and Renato Dias de Brito Gomes.