BCB COPOM Minutes - Meeting 266
Central bank: bcb | Type: minutes | Date: 2024-11-05

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Minutes of the Meeting of the
Monetary Policy Committee — Copom
November 5-6, 2024
266th
266th Meeting
COPOM
November 5-6
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Date:
November 5-6, 2024
Place: BCB Headquarters’ meeting rooms on the 8th floor (11/5 and 11/6 on the morning)
and 20th floor (11/6 on the afternoon) – Brasilia – DF – Brazil
Starting and ending
times:
November 5: 10:09 AM – 11:50 AM; 2:43 PM – 5:42 PM
November 6: 10:19 AM – 11:17 AM; 2:38 PM – 6:31 PM
In attendance:
Copom Members Roberto de Oliveira Campos Neto – Governor
Ailton de Aquino Santos
Carolina de Assis Barros
Diogo Abry Guillen
Gabriel Muricca Galípolo
Otávio Ribeiro Damaso
Paulo Picchetti
Renato Dias de Brito Gomes
Rodrigo Alves Teixeira
Department Heads in
charge of technical
presentations (attending
on 11/5 and on the
morning of 11/6):
Alan da Silva Andrade Mendes – Department of Foreign Reserves
André Minella – Research Department (also present on the afternoon of 11/6)
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 André Maurício Trindade da Rocha – Head of the Financial System Monitoring Department
(attending on 11/5 and Arnaldo José Giongo Galvão – Press Office Advisor
on the morning of 11/6): Arnildo da Silva Correa – Head of Office of the Economic Advisor
Edson Broxado de França Teixeira – Head of Office of the Deputy Governor for Supervision
Eduardo José Araújo Lima – Head of Office of the Deputy Governor for Economic Policy
Erasto Villa Verde de Carvalho Filho – General Counsel
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 11/5
Gilneu Francisco Astolfi Vivan – Head of the Financial System Regulation Department
Isabela Ribeiro Damaso Maia – Head of the Sustainability and International Portfolio Investors
Unit (present on the afternoon of 11/5)
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
Luís Guilherme Siciliano Pontes – Deputy Head of the International Reserves Department
Mariane Santiago de Souza Nogueira – Head of the Governor’s Office
Olavo Lins Romano Pereira – Deputy Head of the Department of International Affairs
Renato Baldini Junior – Head of the Department of Statistics
Ricardo Eyer Harris – Head of Office of the Deputy Governor for Regulation
Ricardo Franco Moura – Head of the Prudential and Foreign Exchange Regulation Department
Simone Miranda Burello – Advisor in the Office of the Deputy Governor for Monetary Policy
Copom members analyzed the recent performance and prospects for the Brazilian and
international economies, under the monetary policy framework, whose objective is to achieve the
inflation targets set by the National Monetary Council.
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COPOM
November 5-6
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A) Update of the economic outlook and the Copom’s scenario 1
1. The global environment remains challenging, due mainly to the uncertain economic
outlook in the United States, which poses questions about the pace of economic
deceleration, disinflation and, consequently, about the Fed’s monetary policy stance.
2. The central banks of major economies remain committed to bringing inflation back
to its targets in a context characterized by labor market pressures. The Committee
judges that the external environment, also marked by less synchrony in monetary policy
cycles across countries, continues to require caution from emerging market economies.
3. Regarding the domestic scenario, the set of indicators on economic activity and labor
market continues to exhibit strength.
4. Headline inflation and measures of underlying inflation are above the inflation target
in recent releases. Inflation expectations for 2024 and 2025 collected by the Focus
survey are around 4.6% and 4.0%, 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 5.752 and evolves according to the purchasing
power parity (PPP). In this scenario, oil prices follow approximately the futures market
curve for the following six months and then start increasing 2% per year. Moreover, the
energy tariff flag is assumed to be “yellow” in December of years 2024 and 2025.
6. In the reference scenario, Copom's projections are still above the 3.0% target for the
current relevant monetary policy horizon. The four -quarter inflation projection for the
second quarter of 2026 is 3.6% (Table 1). Inflation projections for the calendar years
2024 and 2025 are 4.6% and 3.9%, respectively.
7. The external environment remains challenging, with significant economic and
geopolitical uncertainties. Regarding the U.S., high uncertainty persists about the pace
of disinflation and of the economic activity slowdown. At the same time, the possibility
of changes in the conduct of economic policy also brings additional uncertainty to the
scenario, particularly with possible fiscal stimuli, restrictions on labor supply, and the
introduction of import tariffs. The Committee’s reference scenario continues to be for
a gradual and orderly slowdown of the U.S. economy. The Committee discussed the
Chinese slowdown more thoroughly, trying to break down the cyclical and structural
aspects involved. In addition, the recently announced fiscal and monetary responses
may provide some support for short -term growth, but challenges remain for medium -
term growth. Finally, more recent data from several countries corroborate a scenario of
greater differentiation in growth and inflation cycles as the effects from the global
pandemic shock dissipate. Thus, less correlation in financial conditions and less
synchronization in monetary policy cycles across countries is expected in the future.
8. Still on the international scenario, the Committee highlighted the role of fiscal
policies as drivers of demand after the pandemic but stressed that the scope for fiscal
policy has become more limited with the increase in public debt and concerns about
fiscal sustainability. Discussions on spending restraint and debt sustainability have been
recurrent in several countries. In turn, monetary policies, in such an uncertain
environment, remain reactive and data -dependent in most countries, also causing
inherent volatility to the markets. The Committee reinforced that the central banks'
commitment to achieving their targets is a fundamental ingredient in the disinflationary
1 Unless explicitly stated otherwise, this update considers changes since the September Copom meeting
(265th meeting).
2 It corresponds to the rounded value of the average exchange rate observed over 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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November 5-6
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process, corroborated by recent indications of cautious monetary policy cycles in
several countries.
9. Domestic asset prices showed volatility in the period and increased risk premium,
reflecting several uncertainties in the domestic and international scenario. As usual, the
Committee will focus on the transmission mechanisms from the external environment
to the domestic inflation dynamics and their impact on the outlook. Copom also
emphasized that a context of greater global uncertainty and more abrupt exchange
rate movements requires greater caution in the conduct of domestic monetary policy.
10. The Committee assesses that domestic economic activity and the labor market
remain dynamic. More recently, some indicators such as trade and earnings have shown
incipient signs of moderation. This, however, does not imply an inflection in the labor
market or in the pace of growth. The Committee will continue to closely monitor
economic activity, since the dynamic pace of activity growth, in the context of an output
gap assessed as positive, makes inflation convergence to the target more challenging.
The com bination of a robust labor market, expansionary fiscal policy, and vigorous
lending to households continue to support consumption and, consequently, aggregate
demand. In summary, there has been no significant change in the prospective growth
scenario compared with the previous meeting.
11. The dynamism of the labor market continues to be widely debated by the
Committee. The recurring short- and medium-term surprises in the unemployment rate
reaffirm a tight labor market, with dynamism in job creation, job changes, and hirings.
The Committee assesses that the dynamism observed in the labor market is compatible
with services inflation, which remains above the level required to meet the inflation
target. The Committee will continue to monitor the timing and magnitude of the
transmission channel from wages to prices to ensure that inflation converges to the
target.
12. Copom reinforced its view that the slowdown in structural reform efforts and fiscal
discipline, the increase in earmarked credit, and uncertainties over the public debt
stabilization have the potential to raise the economy's neutral interest rate, with
deleterious impacts on the power of monetary policy and, consequently, on the output
cost of disinflation.
13. The market agents' more recent perception about the growth of public spending
and the sustainability of the current fiscal framework has been having a significant
impact on asset prices and expectations. A credible fiscal policy, based on predictable
rules and transparency in its accounts, together with the pursuit of fiscal strategies that
signal and reinforce the commitment to the fiscal framework i n the coming years are
important elements for anchoring inflation expectations and reducing the risk premia
of financial assets, therefore impacting monetary policy. The Committee incorporates
in its scenarios a slowdown in the growth rate of public spending over time and
reinforces the need for sustainable fiscal rules.
14. During the meeting, the challenge of stabilizing the public debt due to more
structural aspects of the government budget was emphasized. It was mentioned that
the reduction of spending growth, especially in a more structural way, could even
induce economic growth in the medium term through its impact on financial conditions,
risk premium, and better allocation of resources. Countercyclical monetary and fiscal
policies help ensure price stability and, without prejudice to its fundamental objective,
smooth out fluctuations in the economic activity level and foster full employment.
15. Deanchoring inflation expectations is a factor of discomfort shared by all
Committee members. Reanchoring expectations is an essential element in ensuring
that inflation converges to the target at the lowest possible cost in terms of activity.
Copom believ es that the conduct of monetary policy is a fundamental factor in
reanchoring expectations and will continue to make decisions that safeguard credibility
and reflect the fundamental role of expectations in inflation dynamics. A further
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deterioration in expectations could lead to a more prolonged monetary policy
tightening cycle.
16. The Committee believes that the short-term inflation scenario is more challenging.
Food prices were reassessed due to many factors, including the drought observed
throughout the year. Regarding industrialized goods, the recent exchange rate
movement has p ressured prices and margins, suggesting a greater increase in these
components in the coming months. Finally, services inflation, which has greater inertia,
remains above the level required to meet the inflation target in a context of dynamic
activity. In fact, an interruption in the disinflationary process has been observed,
reflecting a reduction in the strength of the various factors that had been contributing
to disinflation. It was again emphasized that the labor market, the output gap, and
inflation expectations play a very important role in the medium -term dis inflationary
dynamics. Current inflation, measured by the headline index or by different core
measures, at levels above the target, the dynamism of economic activity, the positive
output gap, unanchored expectations, and the recent exchange rate depreciation make
the inflation convergence to the target more challenging.
17. The Committee judges that the risks to its inflation scenarios are tilted to the
upside. Among the upside risks for the inflation outlook and inflation expectations, it
should be emphasized (i) a more prolonged period of deanchoring of inflation
expectations; (ii) a stronger -than-expected resilience of services inflation due to a
tighter output gap; and (iii) a conjunction of internal and external economic policies
with an inflationary impact, for example, through a persistently more depreciated
currency. 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 monetary policy tightening.
C) Discussion of the conduct of monetary policy
18. Copom then discussed the conduct of monetary policy, considering the set of
projections evaluated, as well as the balance of risks for prospective inflation.
19. Copom assessed that the scenario – marked by resilient economic activity, labor
market pressures, positive output gap, an increase in the inflation projections, and
deanchored expectations – requires a more contractionary monetary policy.
20. Considering the need for a more contractionary monetary policy, the Committee
deemed it appropriate to increase the Selic rate by a larger amount. It was emphasized
that a 0.50 percentage point increase is deemed appropriate given current economic
conditions and future uncertainties, reflecting the commitment to the inflation
convergence to the target, which is essential for the continued building of credibility. In
view of the uncertainties involved, the Committee preferred a communication that
reinforced the importance of monitoring the scenarios over time, without giving any
future indication of its next steps but insisting on its firm commitment to the
convergence of inflation to the target.
D) Monetary policy decision
21. The scenario remains marked by resilient economic activity, labor market pressures,
positive output gap, an increase in the inflation projections, and deanchored
expectations, which requires a more contractionary monetary policy. Considering the
evolution of the disinflationary process, 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 11.25% p.a., and judges that this decision is consistent with the
strategy for inflation convergence to a level around its target throughout the relevant
horizon for monetary policy. Without compromising its fundamental objective of
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ensuring price stability, this decision also implies smoothing economic fluctuations and
fostering full employment.
22. The pace of future adjustments of the interest rate and the total magnitude of the
tightening cycle will be determined by the firm commitment of reaching the inflation
target and will depend on the inflation dynamics, especially the components that are
more sensitive to monetary policy and economic activity, on the inflation projections,
on the inflation expectations, on the output gap, and on the balance of risks.
23. The following members of the Committee voted for this decision: Roberto de
Oliveira Campos Neto (Governor), Ailton de Aquino Santos, Carolina de Assis Barros,
Diogo Abry Guillen, Gabriel Muricca Galípolo, Otávio Ribeiro Damaso, Paulo Picchetti,
Renato Dias de Brito Gomes and Rodrigo Alves Teixeira.
Table 1
Inflation projections in the reference scenario
Year-over-year IPCA change (%)
Price Index 2024 2025 2026Q2
IPCA 4.6 3.9 3.6
IPCA market prices 4.5 3.8 3.4
IPCA administered prices 4.9 4.2 4.3