BCB COPOM Minutes - Meeting 237
Central bank: bcb | Type: minutes | Date: 2021-03-16

Minutes of the Meeting of the
Monetary Policy Committee — Copom
March 16-17, 2021
237th Meeting
COPOM
March 16-17
bcb.gov.br
Date: March 16-17, 2021
Place: BCB Headquarters’ meeting rooms on the 8 th floor – Brasilia – DF – Brazil
Starting and ending
times:
March 16: 10:10 AM – 12:58 PM; 2:40 PM – 6:48 PM
March 17: 2:37 PM – 6:45 PM
In attendance:
Members of the Copom Roberto Oliveira Campos Neto – Governor
Bruno Serra Fernandes
Carolina de Assis Barros
Fabio Kanczuk
Fernanda Feitosa Nechio
João Manoel Pinho de Mello
Maurício Costa de Moura
Otávio Ribeiro Damaso
Paulo Sérgio Neves de Souza
Department Heads in
charge of technical
presentations
(March 16):
Alan da Silva Andrade Mendes – Department of Foreign Reserves
André Minella – Research Department (also present on March 17)
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
(March 16):
Arnildo da Silva Correa – Head of the office of Economic Advisor
Eugênio Pacceli Ribeiro – Executive Secretary
Euler Pereira Gonçalves de Mello – Deputy Head of the Research Department
Julio Cesar Costa Pinto – Head of the Deputy Governor for Monetary Policy’s Office
Leonardo Martins Nogueira – Head of the Governor’s Office
Pedro Henrique da Silva Castro – Deputy Head of the Department of Economics
Sílvio Michael de Azevedo Costa – Deputy Head of the Department of International Affairs
T he members of Copom 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. T his docume nt
represents Copom's best effort to provide an English version of its policy meeting minutes. In
case of inconsistency, the Portuguese version prevails.
237th Meeting
COPOM
March 16-17
bcb.gov.br
A) Update of economic outlook and Copom’s baseline scenario1
1. Regarding the global outlook, new fiscal stimuli in some developed countries and the
advancement of the Covid-19 immunization programs should promote a more robust
economic recovery throughout the year. Economic slack and central bank
communication from ma jor economies suggest monetary stimuli will last long.
However, market discussion regarding inflationary risks in these economies, and the
associated repricing of financial assets, could result in a more challenging environment
for emerging economies.
2. Turning to the Brazilian economy, recent indicators, particularly the GDP growth in
the fourth quarter of 2020, continued to suggest a consistent economic recovery in
spite of the reduction in the emergency income transfers. In general, higher frequency
indicators suggest that this movement probably stretched until February, but this view
requires caution given the greater difficulty in applying seasonal adjustments, due to
recent volatility of da ta s eries and the changes to the holiday schedule at the state level.
Besides, the latest readings do not capture the effects of the recent sharp increase in
the number of Covid -19 cases. Prospectively, uncertainty about economic growth
remains larger than usual, especially for the first and second quarters of this year.
3. The various measures of underlying inflation are in levels above the range compatible
with meeting the inflation target.
4. Inflation expectations for 2021, 2022, and 2023 collected by the Focus survey are
around 4.6%, 3.5%, and 3.25%, respectively.
5. The continuing increase in commodity prices, measured in local currency, is affecting
current inflation, and has triggered additional increases in inflation forecasts for the
next months, especially through its effects on fuel prices. Despite these stronger and
more persistent than expected short -term inflationary pressures, the Committee
maintains the diagnosis that the current shocks are temporary but continues to closely
monitor its evolution.
6. The Copom's inflation projections in its baseline scenario, with interest rate path
extracted from the Focus survey and exchange rate starting at R$5.70/US$ 2, a nd
evolving according to the purchase power parity (PPP), stand around 5.0% for 2021 and
3.5% for 2022. This scenario assumes a path for the Selic rate that ends 2021 at 4.50%
p.a. and rises to 5.50% p.a. in 2022. In this scenario, inflation projections for
administered prices are 9.5% for 2021 and 4.4% for 2022.
B) Risks around the baseline inflation scenario
7. The Copom’s baseline scenario for inflation encompasses risk factors in both
directions.
8. On the one hand, the worsening of the pandemic may delay the economic recovery,
producing a lower-than-expected prospective inflation trajectory.
9. On the other hand, an extension of fiscal policy responses to the pandemic that
aggravates the fiscal path or a frustration with the continuation of the reform agenda
may increase the risk premium. The relative increase in the risks of these events implies
an upward asymmetry to the balance of risks, i.e. , in the direction of higher -than-
expected paths for inflation over the relevant horizon for monetary policy.
Unless explicitly stated otherwise, this update takes into account changes that occurred since the January Copom meeting
meetin g).
2 V alue obtained according to the usual procedure of rounding the average R$/US$ exchange rate observed in the fi ve
business days end ed in the last d ay of the week p rior to the Copo m meeting.
237th Meeting
COPOM
March 16-17
bcb.gov.br
C) Discussion about the conduct of monetary policy
10. Regarding the global outlook, the Committee assessed that the progress in the
implementation of Covid-19 immunization programs, the new fiscal stimuli in some
developed countries, and the communication by central banks of major economies that
monetary stimuli will be long-lasting should imply robust economic growth during the
year. However, the discussion about reflation has increased volatility in some markets.
This repricing of important financial asset s could result in a more challenging
environment for emerging economies.
11. The Copom members discussed the evolution of domestic economic activity in light
of the available information and indicators. They evaluated that, despite the partial
reduction in governmental emergency transfer programs, the economic recovery has
been better than expected. However, they noted that the latest available data do not
yet account for the possible effects of the recent sharp increase in the number of Covid-
19 cases, and that there is considerable uncertainty about the pace of economic growth
in the first and second quarters of this year. Looking ahead, the Committee assessed
that a possible economic recovery setback due to the worsening of the pandemic would
be less extreme than the one observed last y ear and w ould probably be followed by
another fast recovery. For the Committee, the second half of the year may show a
robust recovery, as the effects of vaccination are felt more broadly.
12. Next, the Copom members debated on the level of economic slack. The Committee
believes that the pandemic produced heterogeneous effects across economic sectors,
and that governmental emergency transfer programs reduced the slack in the goods
sector. T he Copom judges that economic activity and formal labor market data suggest
that the overall slack has declined faster than anticipated, despite the increase in the
unemployment rate.
13. Next, the Copom turned to the monetary policy discussion. In the Commit tee’s
opinion, in addition to the strong pace of growth in recent months, with a consequent
reduction in economic slack, there has been a reversal in inflation expectations. These
expectations have moved to the upper part of the tolerance interval of the inflation
target for 2021, and to around the target for 2022, the two calendar years within the
relevant monetary policy horizon. As a result, the Copom members concluded that the
current scenario ceased to prescribe an extraordinary degree of stimulus, and that the
Copom should begin a process of partial normalization of the policy ra te.
14. The Copom then discussed the implementation of monetary policy, considering not
only the baseline scenario, but also the balance of risks for inflation. According to the
baseline scenario, which uses the interest rate trajectory extracted from the Focus
survey, the inflation projections are near the upper bound of the tolerance interval in
2021, and around the target in 2022. The Committee pondered that despite the recent
approval of important reforms, which will bring benefits in the medium term, the fiscal
risks remain high in the short term due to the worsening of the pandemic, which implies
an upward bias to these projections. This asymmetry in the balance of risks affects the
appropriate degree of monetary stimulus, justifying a trajectory with a larger initial
increase in the policy rate than that implied by the baseline scenario.
15. The Committee also highlighted that the delay in the normalization of the
production chains, which puts pressure on production costs and inflation in specific
sectors, suggests that there is also a positive demand shock at work. Sev era l m embers
also stressed that the inflationary pressures observed in 2021 may affect inflation
expectations for 2022, risking a de-anchoring of expectations over the relevant ho rizon
for monetary polic y. Finally, regarding the recent dynamics of inflation, the Committee
pointed out that, despite the diagnosis that the current shocks are temporary, the
Brazilian inflation targeting regime aims at headline inflation in the calendar year. All
237th Meeting
COPOM
March 16-17
bcb.gov.br
these factors have contributed to a more assertive stance in the conduct of monetary
policy.
16. Based on all these considerations, the Committee concluded that an initial
adjustment of 0.75 p.p. in the Selic rate would be the most appr opriate. T his swifter
adjustment of the degree of stimulus is compatible with meeting the target over the
relevant horizon, even in a scenario of a temporary increase in social distancing.
17. Similarly , the Committee assessed that for the next meeting it would be appropriate
to continue the process of partial normalization of the monetary stimulus with another
adjustment of the same magnitude. The Copom reinforced that its views for the next
meeting may be altered if there is a significant change in the inflation projections or the
balance of risks, and that, ultimately , the decision will continue to depend on the
evolution of economic activity, the balance of risks, and the inflation projections and
expectations.
D) Monetary policy decision
18. Considering the baseline scenario, the balance of risks, and the broad array of
available information, the Copom unanimously decided to increase the Selic rate by
0.75 p.p. to 2.75% p.a. The Committee judges that this decision reflects its baseline
scenario for prospective inflation, a higher-than-usual variance in the balance of risks,
and it is consistent with convergence of inflation to its target over the relevant horizon
for monetary policy, which includes 2021 and, mainly, 2022.
19. The Committee believes that persevering in the process of reforms and necessary
adjustments in the Brazilian economy is essential for a sustainable economic recovery.
The Copom also stresses that uncertainty regarding the continuation of the reform
agenda and permanent changes to the fiscal consolidation process could result in an
increase in the structural interest rate.
20. The Copom members consider that the current conditions ceased to prescribe an
extraordinary stimulus. GDP ended 2020 growing strongly at the margin, recovering
most of its first half -year decline, and inflation expectations rose above target at the
relevant horizon for monetary policy. Additionally, inflation projections increased to
levels close to the upper bound of the target for 2021.
21. Therefore, the Copom decided to start a process of partial normalization by
reducing the extraordinary degree of monetary stimulus. For all the aforementioned
reasons, the Committee considered appropriate an adjustment of 0.75 p.p. in the Selic
rate. In the Committee's evaluation, a swifter adjustment has the benefit of reducing
the probability of not meeting the inflation target in 2021, as well as of keeping longer
horizon expectations well anchored. Additionally, the broad set of information available
to the Committee suggests that this strategy is consistent with meeting the 2022
inflation target, even if social distancing increases temporarily.
22. For the next meeting, unless there is a significant change in inflation projections or
in the balance of risks , the Committee foresees the continuation of the partial
normalization process with another adjustment, of the same magnitude, in the degree
of monetary stimulus. The Copom emphasizes that its view for the next meeting will
continue to depend on the evolut ion of economic activity, the balance of risks, and
inflation projections and expectations.
23. The following members of the Committee voted for this decision: Roberto Oliveira
Campos Neto (Governor), Bruno Serra Fernandes, Carolina de Assis Barros, Fabio
Kanczuk, Fernanda Feitosa Nechio, João Manoel Pinho de Mello, Maurício Costa de
Moura, Otávio Ribeiro Damaso and Paulo Sérgio Neves de Souza.