BCB COPOM Minutes - Meeting 259
Central bank: bcb | Type: minutes | Date: 2023-12-12

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Minutes of the Meeting of the
Monetary Policy Committee — Copom
December 12-13, 2023
259th
259th Meeting
COPOM
December 12-13
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The Copom members analyzed the recent performance and prospects for the Brazilian and
international economies, under the monetary policy framework, whose objective is to comply with
the inflation targets established by the National Monetary Council.
Date:
December 12-13, 2023
Place: BCB Headquarters’ meeting rooms on the 12 th floor (12/12 and 12/13 on the
morning) and 20th floor (12/13 on the afternoon) – Brasilia – DF – Brazil
Starting and ending
times:
December 12: 10:18 am – 11:45 am; 2:25 pm – 6:10 pm
December 13: 11:08 am – 12:21 pm; 2:36 pm – 6:33 pm
In attendance:
Copom Members Roberto de Oliveira Campos Neto – Governor
Ailton de Aquino Santos
Carolina de Assis Barros
Diogo Abry Guillen
Fernanda Magalhães Rumenos Guardado
Gabriel Muricca Galípolo
Maurício Costa de Moura
Otávio Ribeiro Damaso
Renato Dias de Brito Gomes
Department Heads in
charge of technical
presentations (attending
on 12/12 and on the
morning of 12/13):
Alan da Silva Andrade Mendes – Department of Foreign Reserves
André Minella – Research Department (also present on the afternoon of 12/13)
André de Oliveira Amante – Open Market Operations Department
Marcelo Antonio Thomaz de Aragão – Department of International Affairs
Ricardo Sabbadini – Department of Economics
Rogério Antônio Lucca – Department of Banking Operations and Payments System
Other participants
(attending on 12/12 and
on the morning of
12/13):
André Mauricio Trindade da Rocha – Head of Office of the Deputy Governor for Supervision
Arnildo da Silva Correa – Head of the Office of Economic Advisor
Augusto Ornelas Filho – Head of the Prudential and Foreign Exchange Regulation Department
Eduardo José Araújo Lima – Head of Office of the Deputy Governor for Economic Policy
Euler Pereira Gonçalves de Mello – Deputy Head of the Research Department
Fábio Martins Trajano de Arruda – Deputy Head of the Department of Banking Operations and
Payments System (present on the morning of 12/12)
Fernando Alberto G. Sampaio de Cavalcante Rocha – Head of the Department of Statistics
Gilneu Francisco Astolfi Vivan – Head of the Financial System Monitoring Department
Gustavo Andrade Barbosa de Souza – Deputy Head of the Open Market Operations Department
Isabela Ribeiro Damaso Maia – Head of the Sustainability and International Portfolio Investors
Julio Cesar Costa Pinto – Head of Office of the Deputy Governor for Monetary Policy
Laura Soledad Cutruffo Comparini – Deputy Head of the Department of Economics
Leonardo Martins Nogueira – Executive Secretary
Lucas Alves Freire – General Counsel
Luís Guilherme Siciliano Pontes – Deputy Head of the International Reserves Department
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
Ricardo Eyer Harris – Head of Office of the Deputy Governor for Regulation
259th Meeting
COPOM
December 12-13
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A) Update of economic outlook and Copom’s scenario1
1. The global environment remains volatile and is less adverse than in the previous
meeting, with a reduction in longer -term interest rates in the United States and
incipient signs of lower core inflation, despite remaining at high levels in many
countries.
2. The central banks of major economies remain committed to bringing inflation back
to its targets in an environment characterized by labor market pressures. The
Committee judges that the environment continues to require caution from emerging
market economies.
3. Regarding the domestic outlook, the recent set of economic activity indicators
remains consistent with the economic deceleration scenario expected by the
Committee. The release of the third-quarter GDP figures confirmed the anticipated
moderation in growth, but with resilience in household consumption. The labor market
remains strong but with some moderation at the margin.
4. Consumer inflation follows the expected path of disinflation and its benign
composition stand s out. The inflation of the components more sensitive to the
economic cycle and the monetary policy came closer to the inflation target in the most
recent releases. Inflation expectations for 2023, 2024, and 2025 collected by the Focus
survey are around 4.5%, 3.9%, and 3.5%, respectively.
B) Scenarios and risk analysis
5. In the reference scenario, the interest rate path is extracted from the Focus survey,
and the exchange rate starts at USD/BRL 4.902 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.
Moreover, the energy flag is assumed to be “green” in December 2024 and 2025. In this
scenario, Copom’s inflation projections stand at 4.6% for 2023, 3.5% for 2024, and 3.2%
for 2025. Inflation projections for administered prices are 9.1% for 2023, 4.5% for 2024,
and 3.6% for 2025.
6. The Committee believes that the international environment is less adverse than at
the previous meeting. The most recent data, although still incipient, suggest moderate
growth and slowdown of inflationary pressures in some countries, especially in the
groups of industrial goods and energy commodities. As a result, for several Copom
members, the probability of a soft landing in the United States has increased. This
environment has allowed some countries to signal a shift in monetary policy, while
other count ries have maintained their strategy of prolonged monetary policy
tightening, which has been essential to contain global inflation. The Committee again
focused on the sources and uncertainties for the future disinflationary process,
contrasting the improvement in the current inflationary outlook with the challenges
still ahead, such as the uncertain geopolitical context, the heated labor markets, and
the tight output gap in several advanced economies. Given the recent volatility and
uncertainty ahead on the international outlook, Copom maintained its assessment that
it is appropriate to adopt a cautious stance, especially in emerging countries. In addition,
it will continue to monitor the data from the global economy and their respective
transmission channels to the domestic economy.
1 Unless explicitly stated otherwise, this update considers changes that occurred since the October/November
Copom meeting (258th meeting).
2 Corresponds to the rounded value of the average USD/BRL exchange rate observed on the ten working days
ending on the last day of the week prior to the Copom meeting, according to the procedure adopted since
the 258th meeting.
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COPOM
December 12-13
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7. Regarding the domestic economic activity, the release of GDP for the third quarter
indicated a moderation in economic growth, in line with the scenario of activity
slowdown over the second half of the year anticipated by the Committee. The resilience
of household consumption – which surprised positively again – may be related to an
increase in gross household income, due to the expansion of the labor market, social
benefits, and income gains related to disinflation in important segments of the
consumer’s basket. In turn, gross fixed capital formation – which is more sensitive to
financial conditions and future prospects and uncertainties – continues to fall, after a
sharp rise during the pandemic period. Some members judged that the persistence of
a combination of greater resilience in consumption and reduction of investment could
lead to demand exceeding supply in the medium term, with potential impacts on prices.
In short, activity data released since the previous meeting corroborate the scenario
outlined by Copom.
8. Copom reinforced its view that the lack of commitment to structural reforms and
fiscal discipline, the increase of earmarked credit granting, and the uncertainties about
the stabilization of the public debt have the potential to raise the neutral interest rate
of the economy, with harmful impacts on the power of monetary policy and,
consequently, on the cost of disinflation in terms of activity.
9. In the Copom's analysis of the labor market, formal job hiring remains at high levels
and compatible with a very dynamic labor market. Although real income gains increased
in the most recent period, the Committee maintained its assessment that this
development may reflect temporary issues and that there is no evidence of high wage
pressures in labor negotiations. The Committee deemed important to continue
monitoring the several labor market variables very closely, in particular the dynamics of
real income. Copom will continue to pay attention to the dynamics of earnings coming
from several surveys to better evaluate the degree of slack in the labor market and its
potential impacts on the services inflation.
10. Corporate credit granting registered a high er deceleration , coupled with a
recomposition that involves relatively less credit from the banking sector and more
from the capital markets. Despite the tight monetary conditions, Copom emphasized
that a transmission of the monetary policy cycle expected by the market to the current
rates of new credit grants is already taking place, leading, in particular, to greater
dynamism in the capital market in the recent period.
11. On the fiscal front, the Committee reaffirms the importance of firmly pursuing the
already established fiscal targets, given their importance for the anchoring of inflation
expectations, and hence for the conduct of monetary policy.
12. The disinflationary dynamics did not diverge significantly from what the Committee
expected, as the benign evolution of the current inflation scenario continues, and some
sources that contributed to the first stage of disinflation have been exhausted. The
underlying services component showed some downward surprises, which prompted a
discussion about the reasons for this result , which include, among others, the
normalization of relative prices, the inertial impact of headline inflation, the benign
behavior of wages, the stronger movement of primary shocks in commodity and food,
and the lagged impacts of monetary policy. The prospective evolution of the output
gap and the behavior of the labor market were considered very relevant in determining
the speed with which inflation will reach the target. Based on mor e evidence, the
Committee slightly raised the inflationary impact of the El Niño weather phenomenon
on food inflation. In the end, it was unanimously concluded that a contractionary and
cautious monetary policy was needed to reinforce the disinflationary dynamics.
13. Inflation expectations remain unanchored and are a cause for concern. The
Committee believes that lowering expectations requires firm action by the monetary
authority, as well as continued strengthening of the credibility and reputation of both
the institu tions and the fiscal and monetary frameworks that make up the Brazilian
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economic policy.
14. The Committee 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; and (ii) a
stronger-than-expected resilience of services inflation due to a tighter output gap.
Among the downside risks, it should be noted (i) a greater-than-projected deceleration
of global economic activity; and (ii) an impact on global inflation larger than expected
from synchronized monetary policy tightening. In light of the international
environment, the Committee judges that the current conjuncture remains uncertain
and requires caution on the conduct of monetary policy.
C) Discussion about the conduct of monetary policy
15. Copom then discussed the conduct of monetary policy, considering the set of
projections evaluated, as well as the balance of risks for inflation.
16. The Committee believes that there has been a significant disinflationary progress,
in line with what the Committee had anticipated, but there is still a long way to go to
anchor expectations and bring inflation back to the target, which requires serenity and
moderation in the conduct of monetary policy. In addition, uncertainty, particularly in
this volatile international environment, recommends caution in the conduct of
monetary policy. The Committee recalled that the incorporation of scenarios and
exogenous variables, such as fiscal dynamics or the external scenario, takes place
through their impact on the prospective dynamics of inflation, with no mechanical
relationship with the determination of the interest rate.
17. The domestic scenario is moving in line with what was expected. The conclusion is
that the disinflationary path of core and services inflation continues, reinforcing the
benign dynamics of recent inflation. In addition, as anticipated by the Committee,
recent data suggest a moderation in economic activity. Inflation expectations for longer
maturities have remained unanchored since the previous Copom meeting. Finally,
inflation projections for the relevant h orizon have not changed significantly, standing
above the target.
18. After the scenario evaluation, all members agreed that it was appropriate to reduce
the Selic rate by 0.50 percentage point to adjust the degree of prospective monetary
tightening.
19. The Committee analyzed various prospective scenarios, characterized by different
trajectories in the domestic and international environments. Then, it discussed the
appropriate strategy and cycle length in each of these scenarios. It was decided to
maintain the recent communication, which already includes the appropriate
conditionality in an uncertain environment, specifying the course of action if the
expected scenario is confirmed. Regarding the next steps, Copom members
unanimously anticipated cuts of 0.50 percentage point in the next meetings and judged
that this pace is appropriate to keep the necessary contractionary monetary policy for
the disinflationary process. On the one hand, t his pace brings together the firm
commitment with the reanchoring of expectations and the disinflationary dynamics
and, on the other hand, the adjustment in the level of monetary tightening in real terms
in face of the more benign dynamics of the anticipated inflation in the referenc e
scenario projections.
20. Finally, the Committee discussed the extension of the monetary policy adjustments
cycle. The Committee assesses the need to maintain a still contractionary monetary
policy in the relevant horizon to consolidate the inflation convergence to the target and
the anchoring of expectations. Copom emphasized again that the extension of the cycle
over time will depend on the inflationary dynamics, especially the components that are
more sensitive to monetary policy and economic activity, on inflation expectations, in
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particular the longer-term ones, on its inflation projections, on the output gap, and on
the balance of risks. The Committee maintains its firm commitment to the convergence
of inflation to the target in the relevant horizon and reinforces that the extensi on of
the cycle will reflect the BCB’s legal mandate.
D) Monetary policy decision
21. Considering the evolution of the disinflationary process, the assessed scenarios, the
balance of risks, and the broad array of available information, Copom decided to reduce
the Selic rate by 0.50 percentage point, to 11.75% p.a., and judges that this deci sion is
consistent with the strategy for inflation convergence to a level around its target
throughout the relevant horizon for monetary policy, which includes 2024 and 2025.
Without compromising its fundamental objective of ensuring price stability, this
decision also implies smoothing economic fluctuations and fostering full employment.
22. The current context, characterized by a stage in which the disinflationary process
tends to be slower, with only partial reanchoring of inflation expectations and a
challenging global outlook, requires serenity and moderation in the conduct of
monetary policy. The Committee reinforces the need to persist on a contractionary
monetary policy until the disinflationary process consolidates and inflation
expectations anchor around its targets.
23. If the scenario evolves as expected, the Committee members unanimously
anticipate further reductions of the same magnitude in the next meetings, and judge
that this pace is appropriate to keep the necessary contractionary monetary policy for
the disinflationary process. The Committee emphasizes that the total magnitude of the
easing cycle throughout time will depend on the inflation dynamics, especially the
components that are more sensitive to monetary policy and economic activity, on
inflation expectations, in particular the longer-term ones, on its inflation projections, on
the output gap, and on the balance of risks.
24. The following members of the Committee voted for a reduction of 0.50 percentage
point: Roberto de Oliveira Campos Neto (Governor), Ailton de Aquino Santos, Carolina
de Assis Barros, Diogo Abry Guillen, Fernanda Magalhães Rumenos Guardado, Gabriel
Muricca Galípolo, Maurício Costa de Moura, Otávio Ribeiro Damaso, and Renato Dias de
Brito Gomes.