BCB COPOM Minutes - Meeting 248
Central bank: bcb | Type: minutes | Date: 2022-08-02

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inutes of the Meeting of the
Monetary Policy Committee — Copom
August 2-3, 2022
248th
248th Meeting
COPOM
August 2-3
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e 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. 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: August 2-3, 2022
Place: BCB Headquarters’ meeting rooms on the 8th floor (8/2 and 8/3 on the morning) and
20th floor (8/3 on the afternoon) – Brasilia – DF – Brazil
Starting and ending
times:
August 2: 9:48 AM – 12:04 PM; 2:18 PM – 6:32 PM 10:03 AM – 11:17 AM; 2:28 PM
– 6:31 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 August 2
and on the morning of
August 3):
Alan da Silva Andrade Mendes – Department of Foreign Reserves
André Minella – Research Department (also present on the afternoon of August 3)
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 August 2
and on the morning of
August 3):
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
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
Ricardo Franco Moura – Head of the Prudential and Foreign Exchange Regulation Department
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A) Update of economic outlook and Copom’s scenario1
1. The global environment remains adverse and volatile, with marked downward
revisions on prospective global growth in an environment of inflationary pressures.
2. The growth of major economies has been revised down for 2022 and 2023 due to the
expected reversa l of the stimuli implemented during the long pandemic period, in
particular, those of monetary policy. Furthermore, the war in Ukraine impacts the
supply of natural gas, thus bringing additional uncertainty to the European economic
scenario, whereas, in China, the deterioration of the real estate sector, coupled with the
policy to fight Covid-19, negatively impact the country’s growth prospects.
3. Inflation rates figures in some advanced economies released in the period suggest
the persistence of strong pressures, although an incipient normalization in the supply
chains and accommodation in the prices of leading commodities is already observed
recently. Coupled with the adjustment of inventories of industrial goods, these
developments might imply the moderation of inflationary pressures related to goods.
On the other hand, the degree of slack in the labor market in these economies suggests
that inflationary pressures in the sector of services might take long to dissipate.
4. Central banks in developed and emergin g countries have adopted a more
contractionary stance against increased inflation. The acceleration in the process of
normalization of monetary policy in advanced economies, the increase in risk aversion,
and the change in the growth outlook have impacted financial conditions in both
advanced and emerging economies, affecting the volatility of assets and economic
growth prospects. The Committee continues monitoring the risks involving a global
deceleration in a highly pressured inflationary environment.
5. Turning to the Brazilian economy, the set of indicators released since the previous
Copom meeting continues to suggest that the economy grew throughout the second
quarter, with the labor market recovery stronger than expected by the Committee.
Indicators rel ated to both formal job openings and employment and unemployment
rates suggest a rapid normalization in the labor-intensive sectors after the pandemic.
6. Consumer inflation remains high, with increases spread among several components,
and continues to be more persistent than anticipated. The reduction of taxes on energy
prices is already observed in high frequency indicators, although the components more
sensitive to the economic cycle and monetary policy, with higher inflationary inertia,
continue above the range compatible with meeting the inflation target. Inflation
expectations for 2022, 2023, and 2024 collected by the Focus survey are around 7.2%,
5.3%, and 3.3%, respectively.
B) Scenarios and risk analysis
7. In the reference scenario, the interest rate path is extracted from the Focus survey,
and the exchange rate starts at USD/BRL 5.302 and evolves according to the purchasing
power parity (PPP). This scenario assumes a path for the Selic rate that ends 2022 at
13.75% p.a., falls to 11.00% in 2023 and to 8.00% in 2024. 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 "yellow" in December 2022, 2023, and 2024. In this scenario, Copom's inflation
projections stand at 6.8% for 2022, 4.6% for 2023, and 2.7% for 2024. Inflation
projections for administered prices are -1.3% for 2022, 8.4% for 2023, and 3.6% for
Unless explicitly stated otherwise, this update takes into account changes that occurred since the June
Copom meeting (247
meeting).
V alue obtained according to the usual procedure of rounding the average USD/BRL exchange rat e
observed on the five bus iness days ending on the last day of the week before the Copom meeting.
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2024. The projections based on the reference scenario incorporate the tax measures
recently approved. For the six-q uarter-ahead horizon, which mitigates the calendar-year
impact but incorporates the seco nd-round effects of the tax measures that occur in
2022 and the first quarter of 2023, the 12-month inflation projection stands at 3.5%.
The Committee judges that the uncertainty in its assumptions and projections is higher
than usual.
8. The Committee evaluates that the global inflationary scenario is still challenging.
Pressures stemming from both persistently high demand for goods, as w ell as supply
shocks linked to the war in Ukraine, China's Covid-19 policy, and policies restricting trade
in agricultural products in commodity -producing countries, might have long -term
consequences and lead to more persistent inflationary pressures. However, the re -
evaluation of future global demand has led to price declines of leading commodities as
wel l as the prospects of reduced imbalance in the industrial goods market. Copom, even
so, reiterates that some geopolitical and particular issues in these markets still deserve
attention.
9. The Committee discussed the impacts of the global synchrony in the process of
stimulus withdrawal. Copom noticed a more accelerated pace in the process of
monetary policy adjustment in advanced economies, as well as the commitment stated
in the communicat ion of major central banks to reduce inflationary pressures. It was
observed that this movement elevated the market volatility, unevenly impacting several
assets and increasing risk aversion. In addition, given the persistence of the inflationary
process in advanced economies and the consequent responses by several central banks,
the Committee evaluates that the probability of alternative scenarios incorporating a
sharper deceleration of global economic activity increased. The uncertainty about the
energy scenario in Europe, the dynamics of sectors more sensitive to interest rates in
the United States, and the prospects of a more gradual growth in China contribute to
this scenario.
10. In the domestic scenario, Copom evaluates that temporary policies aimed to
support income could provide stimulus to aggregate demand and the extension of
these policies might increase the country’s risk premia and inflation expectations as
they pressure aggregate demand and worsen the fiscal trajectory. T he Co mmittee
reiterates that there are several channels by which fiscal policy may affect inflation,
including its effect on activity, asset prices, and inflation expectations.
11. Labor market data, especially concerning the pace of job openings and the
unemployment rate, surprised in the period and indicate a faster -than-anticipated
narrowing of the es tima te o f the output gap. However, the Committee evaluates that
economic slackness persists. Nevertheless, it is noteworthy that evaluations about the
output gap, especially about the com ponent related to the labor market, are always
subject to uncertainty, notably in the current situation in which the economy is still
normalizing after the pandemic and with remarkable heterogeneity across sectors in this
process. Copom will continue monit oring and evaluating the output gap in the next
releases. The Committee still considers that activity should decelerate in the coming
quarters when the lagged impacts of monetary policy will be more strongly felt.
12. It 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)
an increase in the risk
premium due to 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. Among the downside risks, it should be noted (i)
a possible reversion, e ven 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 assesses that the possibility that fiscal policies
that support aggregate demand become permanent heightens the upside risks of the
inflationary scenario. On the other hand, the Committee notes that the rising risk of a
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greater global deceleration increases the downside risks to inflation. The Committee
assesse s that the still uncertain and volatile current scenario requires serenity when
evaluating the prospective risks.
C) Discussion about the conduct of monetary policy
13. Copom discussed the conduct of monetary policy, considering the set of projections
evaluated, as well as the balance of risks for inflation.
14. Following its usual governance, the relevant horizon for monetary policy now
refers to the year 2023, and, to a lesser extent, 2024. However, at this meeting, the
Committee noted that inflation projections for the years of 2022 and 2023 were heavily
impacted by temporary tax measures across calendar years. Therefore, the Committee
decided to emphasize the projections for 12 -month inflation in the first quarter of
2024, which reflects the relevant horizon, smoothens out the primary effects from tax
changes, but incorporates their second -round effects on the relevant inflation
projections for monetary policy decisions.
15. The 12-month inflation projection for the first quarter of 2024 – which incorporates
the secondary effects of the tax changes as well as the cumulative effects of keeping
interest rates at a significantly contractionary level – is consistent with the strateg y of
inflation convergence to around the target over the relevant horizon. T he Committee
noted that inflation projection for 2024 is also around the target.
16. 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 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 for the second half
of the year, but the Committee anticipates that measures to sustain aggregate demand,
which will be implemented in the short term, may make it difficult a more precise
evaluation about the stage of the economic cycle and the impacts of monetary policy.
17. The Committee noted that the short- term inflationary dynamics remains
challenging, with increasing core inflation measures in an environment of surprises in
current activity, and that its projections continued to deteriorate, even though the
scenario is surrounded by uncertainty and volatility above the usual. It w as emphasized
that the r ise in expectations and medium-term projections was concentrated in the
inflation of administered prices, due to the temporary nature of some tax measures.
18. The Committee assessed, based on the projections used and on its balance of risks,
that the strategy required to bring the projected inflation to around the target for the
relevant horizon required that the monetary tightening cycle continued to move
significantly further into contractionary territory, with an additional adjustment at this
meeting and t he maintenance of the interest rate in significantly contractionary
territory for a sufficiently extended period.
19. 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, despite the already significantly contractionary stage of monetary
policy, which, considering its lags, should affect the economy more strongly as of the
second half of 2022.
20. The Committee decided to signal that it will assess the need for a smaller residual
adjustment at the next meeting, with the aim of bringing inflation to around the target
in the relevant horizon. Moreover, given the persistence of recent shocks, the
Committee will remain vigilant and will assess whether the prospect of maintaining the
Selic rate by itself for a sufficiently long period will ensure such a convergence. This
strategy was deemed more appropriate to ensure the convergence of inflation over the
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elevant horizon, as well as the anchoring of longer-term inflation expectations, while
reflecting the already implemented monetary tightening, reinforcing the cautious
monetary policy stance, and emphasizing the uncertainty of the scenario.
D) Monetary policy decision
21. Taking into account the assessed scenarios, the balance of risks, and the broad array
of available information, Copom unanimously decided to increase the Selic rate by 0.50
p.p. to 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 target 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.
22. 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.
23. The Committee will evaluate the need for a residual adjustment, of lower
magnitude, in its next meeting. The Copom emphasizes that it will remain vigilant and
that future policy steps could be adjusted to ensure the convergence of inflation
towards its targets. It also stresses that the uncertainty of the current scenario, both
domestic and foreign ones, coupled with the advanced stage of the current monetary
policy cycle, and its cumulative impacts yet to be observed, require additional caution
in its actions.
24. The following members of the Committee voted for this decision: Roberto de
Oliveira Campos Neto (Governor), Bruno Serra Fernandes, Carolina de Assis Barros ,
iogo Abry Guillen, Fernanda Magalhães Rumenos Guardado, Maurício Costa de Moura,
Otávio Ribeiro Damaso, Paulo Sérgio Neves de Souza, and Renato Dias de Brito Gomes.