BCB COPOM Minutes - Meeting 247
Central bank: bcb | Type: minutes | Date: 2022-06-14

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Minutes of the Meeting of the
Monetary Policy Committee — Copom
June 14-15, 2022
247th
247th Meeting
COPOM
June 14-15
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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. This
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:
June 14-15, 2022
Place: BCB Headquarters’ meeting rooms on the 8 th floor (6/14 and 6/15 on the morning) and
20th floor (6/15 on the afternoon) – Brasilia – DF – Brazil
Starting and ending
times:
June 14: 9:42 AM – 11:25 AM; 2:06 PM – 6:03 PM
June 15: 9:38 AM – 10:35 AM; 2:30 PM – 6:36 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 June 14
and on the morning of
June 15):
Alan da Silva Andrade Mendes – Department of Foreign Reserves
André Minella – Research Department (also present on the afternoon of June 15)
André de Oliveira Amante – Open Market Operations Department
Fabia Aparecida de Carvalho – Department of International Affairs
Fábio Martins Trajano de Arruda – Department of Banking Operations and Payments
Systems
Ricardo Sabbadini – Department of Economics
Other participants
(attending on June 14
and on the morning of
June 15):
Arnildo da Silva Correa – Head of the Office of Economic Advisor
Cristiano de Oliveira Lopes Cozer – General Counsel
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
Julio Cesar Costa Pinto – Head of the Deputy Governor for Monetary Policy’s Office
Leonardo Martins Nogueira – Executive Secretary
Marcos Ribeiro de Castro – Deputy Head of the Research Department
Rafael Mendonça Travassos Andrezo – Head of the Governor’s Office
247th Meeting
COPOM
June 14-15
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A) Update of economic outlook and Copom’s scenario1
1. The global environment has deteriorated further, marked by downward revisions on
prospective global growth in an environment of strong and persistent inflationary
pressures arising from the global recovery after the pandemic period . These pressures
have intensified due to the increase of commodity prices in 2022 and, more recently, by
the Covid -19 wave in China, further prolonging the process of normalization in the
supply of industrial inputs. The reorganization of global production chains, already
fueled by the war in Ukraine, is expected to intensify with the search for a greater
regional arrangement of the supply of inputs. In Copom’s view , these developments
might have long-term consequences and lead to more persistent inflationary pressures
on global production of goods.
2. The growth of major economies has been revised down for 2022 and 2023 due to the
expected reversal of the stimuli implemented during the long pandemic period, in
particular by monetary policy action. N egative growth revisions were also noted for
China, partially reflecting the zero-Covid policy adopted by that country.
3. Central banks in developed and emerging countries have adopted a more
contractionary stance against increased inflation, although, in some of these
economies, current interest rates are still at levels evaluated as expansionary. The
repricing of monetary poli cy in advanced economies , the increase in risk aversion, and
the change in the growth outlook have affected financial conditions in both advanced
and emerging economies. The Committee has also discussed the growing risks involving
a global deceleration in a highly pressured inflationary environment.
4. Turning to the Brazilian economy, the set of indicators released since the previous
meeting suggests a growth rate above the Committee’s expectations. Indicators
related to the labor market continue to recover and the release of the 2022Q1 GDP
pointed to a higher -than-expected pace of activity, raising the statistical carry -over for
this year. Household consumption continues to contribute positively, while, in 2022Q1,
Gross Fixed Capital Formation contributed negatively.
5. Consumer inflation remains high, with increases spread among several components,
and continues to be more persistent than anticipated. The inflation of services and of
industrial goods remain high, and the recent shocks continue to cause a strong increase
in food and fuel-related components. Recent readings were higher than expected and
the surprise came in both the more volatile components and on items associated with
core inflation. The inflation of the components mo st sensitive to the economic cycle
and the monetary policy continues elevated, and the various measures of underlying
inflation accelerated, standing above the range compatible with meeting the inflation
target. Inflation expectations for 2022, 2023, and 2024 collected by the Focus survey
are around 8.5%, 4.7%, and 3.25%, 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 4.902 and evolves according to the purchasing
power parity (PPP). This scenario assumes a path for the Selic rate that ends 2022 at
13.25% p.a., falls to 10.0% in 2023 and 7.50% in 2024. The Committee decided to
keep the assumption that oil prices follow approx imately the futures market curve for
the following six months, ending the year at USD 110/barrel, and then start increasing
2% per year in January 2023. Moreover, the energy flag is assumed to be “yellow” in
1 Unless explicitly stated otherwise, this update takes into account changes that occurred since the May
Copom meeting (246th meeting).
2 Value obtained according to the usual procedure of rounding the average USD/BRL exchange rate
observed on the five business days ending on the last day of the week before the Copom meeting.
247th Meeting
COPOM
June 14-15
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December 2022, 2023, and 2024. In this scenario, Copom’s inflation projections stand
at 8.8% for 2022, 4.0% for 2023, and 2.7% for 2024. Inflation projections for
administered prices are 7.0% for 2022, 6.3% for 2023, and 3.3% for 2024. The
projections based on the reference scenario do not incorporate the tax measures on
fuels, energy, and telecom prices under the approval process. The Committee judges
that the uncertainty in its assumptions and projections is higher than usual and has
increased since the previous meeting.
7. The Committee assesses that the global inflationary scenario continues to be marked
by inflationary pressures stemming from both persistently high demand for goods and
supply shocks linked to the war in Ukraine and China's Covid -19 policy. The Committee
further believes th at recent policies restricting trade in agricultural products in
commodity-producing countries, coupled with the effects of the war in Ukraine, bring
additional risk to global inflationary pressures. In the Copom’s view, these
developments might have long -term consequences and lead to more persistent
inflationary pressures.
8. The Committee then discussed the growing risks involving a sharper global
deceleration in a highly pressured inflationary enviro nment. The Committee already
anticipates a slowdown in global activity in the coming quarters, due to geopolitical
tensions and the monetary policy tightening , as well as financial conditions underway
in several central economies. The Committee believes th at the global synchrony in the
process of stimulus withdrawal introduces additional risks to markets and may boost its
impact on the prospective scenario.
9. In this context of global deceleration, Copom considers a possible reversion, even if
partial, of the increase in international commodities measured in local currency
observed in recent quarters.
10. The Committee reinforces that uncertainty about the future of the country's fiscal
framework and fiscal policies that support aggregate demand may bring an upside risk
to the inflationary scenario and to inflation expectations.
11. The Committee believes that recent domestic activity data, which have prompted a
positive revision to 2022 growth, still reflect, for the most part, the post -pandemic
normalization process of the economy, both in the higher consumption of services and
in the utilization of the exces s savings observed over historical records, and the
transitory fiscal stimulus provided in the first half of the year. The Committee assesses
that activity should decelerate in the coming quarters when the lagged impacts of
monetary policy will be more strongly felt.
12. 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) the
uncertainty about the country's future fiscal framework and fiscal policies that support
aggregate demand, partially incorporated in inflation expectations and asset prices.
Among the downside risks, it should be noted (i) a possible reversion, even if partial, of
the increase in the price of international commodities measured in local currency; and
(ii) a greater deceleration of economic activity than projected. The Committee assessed
that the tax measures under the app roval process imply a sizable reduction in inflation
in the current year, although they raise by a smaller magnitude inflation in the relevant
horizon for monetary policy. The Committee assesses that the uncertain and volatile
current scenario requires serenity when evaluating the risks.
C) Discussion about the conduct of monetary policy
13. Copom discussed the conduct of monetary policy, considering the set of projections
analyzed, as well as the balance of risks for prospective inflation.
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COPOM
June 14-15
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14. Copom opened the discussion by evaluating the adjustment cycle carried out up to
this meeting. It was emphasized that the current monetary tightening cycle was quite
intense and timely and that, due to monetary policy lags, much of the expected
contractionary effect and its impact on current inflation are still to be seen.
15. Still, Copom observed deterioration in both the short -term inflationary dynamics
and the longer-term projections, even though the scenario is surrounded by higher than
usual uncertainty and volatility.
16. The Committee believes, based on the projections used and on its balance of risks,
that the strategy required to bring the 4.0% projected inflation to around the target for
the relevant horizon combines, on the one hand, a terminal interest rate above that
used in the reference scenario and, on the other, the maintenance of the interest rate
in significantly contractionary territory for a longer period than that used in the
reference scenario. Thus, the strategy of convergence around the target requires a
more contractionary interest rate than that used in the reference scenario for the entire
relevant horizon.
17. Copom then debated the monetary policy options for this meeting. The Committee
concluded that a further adjustment of 0.50 p.p. was appropriate in an environment of
high uncertainty and the significantly contractionary stage of monetary policy, which,
considering its lags, should affect the economy more strongly as of the second half of
2022.
18. The signaling for the next meeting was then discussed. Given the persistence of the
recent shocks, the Committee evaluated that only the perspective of maintaining the
Selic rate for a sufficiently long pe riod would not assure, at this moment, the
convergence of inflation around the target in the relevant horizon. The Committee then
chose to signal a further adjustment, of equal or smaller magnitude. This strategy was
deemed more appropriate to ensure the c onvergence of inflation over the relevant
horizon, as well as the anchoring of longer-term inflation expectations, while reflecting
the already implemented monetary tightening, reinforc ing the cautious monetary
policy stance, and emphasizing the uncertainty of the scenario.
D) Monetary policy decision
19. Taking into account the assessed scenarios, the balance of risks, and the broad array
of available information, the Copom unanimously decided t o increase the Selic rate by
0.50 p.p. to 13.25% 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 str ategy for inflation
convergence to a level around its target throughout the relevant horizon for monetary
policy, which includes 2023. Without compromising its fundamental objective of
ensuring price stability, this decision also implies smoothing of econo mic fluctuations
and fosters full employment.
20. The Committee considers that, given its inflation projections and the risk of a
deanchoring of long -term expectations, it is appropriate to continue advancing in the
process of monetary tightening significantly into even more restrictive territory. The
Committee emphasizes that it will persist in its strategy until the disinflation process
and the expectation anchoring around its targets consolidate.
21. For its next meeting, the Committee foresees a new adjustment, of the same or
lower magnitude. The Committee stresses that the growing uncertainty of the current
scenario, coupled with the advanced stage of the current monetary policy cycle, and its
impacts yet to be observed, require additional caution in its action s. The Copom
emphasizes that its future policy steps could be adjusted to ensure the convergence of
inflation towards its targets and will depend on the evolution of economic activity, on
the balance of risks, and on inflation expectations and projections for the relevant
horizon for monetary policy.
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COPOM
June 14-15
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22. The following members of the Committee voted for this decision: 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, and Renato Dias de Brito Gomes.