BCB COPOM Minutes - Meeting 238
Central bank: bcb | Type: minutes | Date: 2021-05-04

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Minutes of the Meeting of the
Monetary Policy Committee — Copom
May 4-5, 2021
238th
238th Meeting
COPOM
May 4-5
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he members of Co pom 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.
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: May 4-5, 2021
Place: BCB Headquarters’ meeting rooms on the 8 th floor – Brasilia – DF – Brazil
Starting and
ending times:
May 4: 10:17 AM – 1:01 PM; 2:19 PM – 6:39 PM
May 5: 2:35 PM – 6:37 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
(May 4):
Alan da Silva Andrade Mendes – Department of Foreign Reserves
André de Oliveira Amante – Open Markets Operations Department
Euler Pereira Gonçalves de Mello – Research Department (also present on May 5)
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
(May 4):
Arnildo da Silva Correa – Head of the Office of Economic Advisor
Julio Cesar Costa Pinto – Head of the Deputy Governor for Monetary Policy’s Office
Leonardo Martins Nogueira – Executive Secretary
Olavo Lins Romano Pereira – Deputy Head of the Department of International Affairs
Pedro Henrique da Silva Castro – Deputy Head of the Department of Economics
Rafael Mendonça Travassos Andrezo – Deputy Head of the Governor’s Office
238th Meeting
COPOM
May 4-5
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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 centra l b a nk
communication from major economies suggest monetary stimuli will last long.
However, market discussion regarding inflationary risks in these economies could result
in a more challenging environment for emerging economies.
2. Turning to the Brazilian economy, recent indicators are evolving better than
expected in spite of the second wave of the pandemic being more intense than
anticipated. Prospectively, uncertainty about economic growth still remains larger than
usual but should gradually return to its normal level.
3. The various measures of underlying inflation are at the top of the range compatible
with meeting the inflation target.
4. Inflation expectations for 2021, 2022, and 2023 collected by the Focus survey are
around 5.0%, 3.6%, and 3.25%, respectively.
5. With the exception of oil, commodity prices continued to increase, impacting food
and industry price proje ctions. Additionally, the transition to higher energy prices
related to the electricity tariff flag system should keep inflation under pressure in the
short run. The Committee maintains the diagnosi s that the current shocks are
temporary but continues to closely monitor its evolution.
6. The Copom's inflation projections in its basel ine scenario, with interest rate path
extracted from the Focus survey and exchange rate starting at R$5.40/US$ 2 and
evolving according to the purchase power parity (PPP), stand around 5.1% for 2021 and
3.4% for 2022. This scenario assumes a path for the Selic rate that ends 2021 at 5.50%
p.a. and rises to 6.25% p.a. in 2022. In this scenario, inflation projections for
administered prices are 8.4% for 2021 and 5.0% for 2022.
B) Risks around the baseline inflation scenario
7. The Copom’s baseline scenario for inf lation encompasses risk factors in both
directions.
8. On the one hand, economic recovery from the pandemic can be slower than
estimated, producing a lower-than-expected prospective inflation trajectory.
9. On the other hand, further extensions of fiscal policy responses to the pandemic that
aggravate the fiscal path, or a frustration with the continuation of the reform agenda,
may add pressure to the country's risk premium. The relative increase of 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 March
Copom meeting (237
meeting).
Value obtained according to the usual procedure of ro unding the average USD/BRL exchange rate
observed in the five business days ended in the last day of the week prior to the Copom me e ting.
238th Meeting
COPOM
May 4-5
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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”, in particular about the risk of a lasting
inflation increase in the United States, could result in a more challenging environment
for emerging economies.
11. T he Copom members discussed the evolution of domestic economic activity in light
of the available information and indicators. They considered that, despite the greater-
than-expected intensity of the second wave of the pandemic, the latest available
economic activity data have surprised positively. For the Committee, the second half of
the year should bring a robust recovery, as the effects of the vaccine rollout a re felt
more broadly.
12. The Copom members then debated the level of economic sla ck. Although the
economic slack as a whole is returning to the late 2019 level in the coming quarters, the
Committee considered that the pandemic produced heterogeneous effects across
economic sectors. Whereas the goods sector operates with low slack, the service sector
is struggling to recover. The Copom judg es 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 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 path extracted from the Focus survey,
inflation projections are slightly below the target for 2022. The Committee pondered
that short-term fiscal risks remain high, implying an upward bias in these projections.
This asymmetry in the balance of risks affects the appropriate degree of monetary
stimulus, therefore justifying a 0.75 p.p. increase in the interest rate in this meeting.
14. The Copom then evaluated different normalization paths for the Selic rate.
Considering the baseline scenario and the balance of risks, the Committee deemed
appropriate another adjustment of the same magnitude in the next meeting, unless
inflation determinants change. Additionally, the Committee noted that subsequent
uninterrupted increases in the interest rate up to the level considered neutral imply
projections considerably below the inflation target at the relevant horizon. T he Copom
reinforced that its views for the next meeting may be altered if there is a change in
inflation projections or in the balance of risks, since the decision will continue to depend
on the evolution of economic activity, the balance of risks, and the inflation projections
and expectations.
15. The Committee then discussed the communication of monetary policy and, in
particular, the reference to a “partial normalization” of the interest rate. The Committee
members pointed out that “partial normalization” reflects their opinions on the
appropriate monetary policy for the convergence of inflation to target over the
relevant horizon. The Copom understands that the reference to "partial normalization",
as well as the disclosure of the implicit neutral rate and the output gap in the models
used by the Committee, increases the transparency of the Central Bank ’s rea ction
function and, consequently, improves monetary policy efficiency. Naturally, the Copom
reevaluates its scenario at every meeting committed to the convergence of inflation to
the target over the relevant horizon.
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COPOM
May 4-5
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D) Monetary policy decision
16. Considering the baselin e 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 3.50% 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 2022. Without compromising its fundamental
objective of price stability, this decision also implies smoothing of economic
fluctuations and fosters full employment.
17. At this moment, the Copom's baseline scenario indicates that a partial normalization
of the policy rate remains appropriate to keep some degree of monetary stimu lus
during the economic recovery. However, the Committee emphasizes that there is no
commitment with this plan, and that future steps of monetary policy could be adjusted
to assure the achievement of the inflation target.
18. For the next meeting 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 will continue to depend on
the evolution of economic activity, the balance of risks, and inflation projections and
expectations.
19. 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 Man oel Pinho de Mello, Maurício Costa de
Moura, Otávio Ribeiro Damaso and Paulo Sérgio Neves de Souza.