BCB COPOM Minutes - Meeting 260
Central bank: bcb | Type: minutes | Date: 2024-01-30

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Minutes of the Meeting of the
Monetary Policy Committee — Copom
January 30-31, 2024
260th
260th Meeting
COPOM
January 30-31
2 bcb.gov.br
The 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 established by the National Monetary Council.
Date:
January 30-31, 2024
Place: BCB Headquarters’ meeting rooms on the 8th floor (1/30 and 1/31 on the morning)
and 20th floor (1/31 on the afternoon) – Brasilia – DF – Brazil
Starting and ending
times:
January 30: 10:06 am – 12:26 pm; 2:12 pm – 6:33 pm
January 31: 10:07 am – 11:43 am; 2:31 pm – 6:34 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 1/30 and on the
morning of 1/31):
Alan da Silva Andrade Mendes – Department of Foreign Reserves
André Minella – Research Department (also present on the afternoon of 1/31)
André de Oliveira Amante – Open Market Operations Department
Marcelo Antonio Thomaz de Aragão – Department of International Affairs (attending on
1/30)
Ricardo Sabbadini – Department of Economics
Rogério Antônio Lucca – Department of Banking Operations and Payments System
Other participants
(attending on 1/30 and
on the morning of 1/31):
André Luiz Caccavo Miguel – Deputy Head of the Financial System Monitoring Department
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 Office of the Deputy Governor for Supervision
Eduardo José Araújo Lima – Head of Office of the Deputy Governor for Economic Policy
Euler Pereira Gonçalves de Mello – Deputy Head of the Research Department
Fernando Alberto G. Sampaio de Cavalcante Rocha – Head of the Department of Statistics
Gilneu Francisco Astolfi Vivan – Head of the Financial System Monitoring Department
Gustavo Andrade Barbosa de Souza – Deputy Head of the Open Market Operations Department
Isabela Ribeiro Damaso Maia – Head of the Sustainability and International Portfolio Investors
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
(present on 1/30)
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
Renata Modesto Barreto – Deputy Head of the Department of Banking Operations and Payments
System
Ricardo Eyer Harris – Head of Office of the Deputy Governor for Regulation
Ricardo Franco Moura – Head of the Prudential and Foreign Exchange Regulation Department
260th Meeting
COPOM
January 30-31
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A) Update of the economic outlook and the Copom’s scenario1
1. The global environment remains volatile, with a debate about the beginning of the
easing cycle in major economies and signs of lower core inflation, despite remaining at
high levels in many countries.
2. The central banks of major economies remain committed to bringing inflation back
to its targets in an environment characterized by labor market pressures. The
Committee judges that the environment continues to require caution from emerging
market economies.
3. Regarding the domestic outlook, the recent set of economic activity indicators
remains consistent with the economic deceleration scenario expected by the
Committee. Economic growth has moderated , but household consumption has been
resilient. Lastly, the labor market, despite some moderation at the margin, remains
strong, with acceleration of real income.
4. Consumer inflation follows the expected path of disinflation. The inflation of the
components more sensitive to the economic cycle and the monetary policy are closer
to the inflation target in the most recent releases. Inflation expectations for 2024 and
2025 collected by the Focus survey are around 3.8% and 3.5%, 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 4.952 and evolves according to the purchasing
power parity (PPP). The Committee assumes that oil prices follow approximately the
futures market curve for the following six months and then start increasing 2% per year.
Moreover, the energy flag is assumed to be “green” in December 2024 and 2025. In this
scenario, Copom’s inflation projections stand at 3.5% for 2024 and 3.2% for 2025.
Inflation projections for administered prices are 4.2% for 2024 and 3.8% for 2025.
6. The Committee believes that the international environment remains volatile, marked
by renewed geopolitical tensions and the debate on the beginning of the monetary
policy easing in the major economies. Copom recalls that there is no mechanical
relationship between the conduct of the U.S. monetary policy and the determination of
the domestic policy interest rate, and that it will focus on the transmission mechanisms
from the external environment to the domestic inflationary dynamics. Still on the global
environment, after recognizing an improvement in the current inflation situation, the
Committee focused on the sources, challenges, and uncertainties for the prospective
disinflationary process. The reversal of supply shocks, the producer inflation under
control in China and in the U.S., and the recent commodity price dynamics allow to
extrapolate a benign scenario for goods inflation. However, great uncertainty remains
about the prospective global demand and the extent of a potential residual movement
in relative prices between goods and services. More recently, geopolitical tensions and
the consequent rise in freight prices have added uncertainty to the prospective
scenario. In addition, the dynamics of economic growth and of the labor market will be
important to determine the speed of disinflation in services. These elements contribute
to the debate on the nature of inflationary pressures and, potentially, on the pace of
monetary easing to be adopted by advanced economies. In this context and given the
recent volatility and uncertainty ahead on the international outlook, the Committee
maintained its assessment that it is appropriate to adopt a cautious stance, especially in
emerging countries. In addition, it will continue to monitor the data from the globa l
economy and their respective transmission channels to the domestic economy.
1 Unless explicitly stated otherwise, this update considers changes since the December Copom meeting (259th
meeting).
2 Corresponds to the rounded value of the average USD/BRL 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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COPOM
January 30-31
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7. Regarding domestic economic activity, the scenario of activity slowdown anticipated
by the Committee continues. However, the discussion brough t elements that would
allow to see a mitigation of the anticipated activity slowdown in the coming months,
due to the increase in household income, as a result of the rise in the minimum wage,
social benefits, and the more resilient labor market. It was mentioned that so me high-
frequency indicators would allow a reading that could corroborate this argument. All
members, however, agreed that the Committee's reference scenario continues to be of
a gradual economic growth slowdown, with resilience in household consumption and
less dynamism in gross fixed capital formation. In short, activity data released since the
previous meeting corroborate the scenario outlined by Copom, with no substantial
change in the growth scenario.
8. Copom reinforced its view that the lack of commitment to structural reforms and
fiscal discipline, the increase of earmarked credit granting, and the uncertainties about
the stabilization of the public debt have the potential to raise the neutral interest rate
of the economy, with harmful impacts on the power of monetary policy and,
consequently, on the cost of disinflation in terms of activity.
9. The Committee noted that the labor market remains dynamic but maintained its
assessment that the real income expansion may still reflect temporary issues. Copom
deemed important to continue monitoring the several labor market variables very
closely, in particular the dynamics of real income, which has had higher growth in recent
months. The Committee also discussed more thoroughly the relationship between the
labor market and prices in the economy. It highlighted the reciprocal causality between
prices and the income dynamics, their respective lags, and the elasticities of impact of
one on the other . Copom will continue to pay attention to the dynamics of income
stemming from several surveys to better evaluate the degree of slack in the labor
market and its potential impacts on the services inflation.
10. Despite the restrictive monetary conditions, Copom emphasized that the cycle of
monetary easing is already being transmitted to the credit market. There are signs of
increased credit granting in some lines and reduction in current interest rates on new
operations, also helped by an incipient growing appetite of financial institutions to offer
credit in some lines. Since the previous meeting, the capital market has shown greater
dynamics.
11. On the fiscal front, the Committee reaffirms the importance of firmly pursuing the
already established fiscal targets, given their importance for the anchoring of inflation
expectations, and hence for the conduct of monetary policy.
12. The disinflationary dynamics did not diverge significantly from what the Committee
expected, as the benign evolution of the current inflation scenario continues, and some
sources that contributed to the first stage of disinflation have been exhausted. The
Committee noted, however, that some aspects of recent inflationary dynamics require
further investigation. It discussed, in particular, the recent dynamics of services
inflation, focusing on its underlying components, and the prospective scenarios. Some
members highlighted the importance of understanding the relative contributions to
recent disinflation in services of the current monetary tightening and a potential
spillover from disinflations in food and industrial goods. The prospective evolution of
the o utput gap and the behavior of the labor market were again considered very
relevant in determining the speed with which inflation will reach the target. A tighter
labor market, with wage adjustments above the inflation target, could potentially slow
down in flation convergence, notably impacting inflation in services and more labor -
intensive sectors. Conversely, a favorable recovery of relative prices, a benign
commodity dynamics or lower services inflation could potentially contribute to a faster
disinflationary process. In its conclusion, the Committee considers that the prospective
inflation scenario has not changed. Final ly, the Committee has already incorporated a
rise in prices due to the El Niño phenomenon into its projections and is monitoring the
impacts of the phenomenon's reversal. In the end, it was unanimously concluded that a
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COPOM
January 30-31
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contractionary and cautious monetary policy was needed to reinforce the
disinflationary dynamics.
13. Inflation expectations remain unanchored and are a cause for concern. The
Committee believes that lowering expectations requires firm action by the monetary
authority, as well as continued strengthening of the credibility and reputation of both
the institutions and the fiscal and monetary frameworks that make up the Brazili an
economic policy.
14. 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) a
stronger-than-expected resilience of services inflation due to a tighter output gap.
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 synchronized monetary policy tightening. In light of the international
environment, the Committee judges that the current conjuncture remains uncertain
and requires caution on the conduct of monetary policy.
C) Discussion of the conduct of monetary policy
15. Copom then discussed the conduct of monetary policy, considering the set of
projections evaluated, as well as the balance of risks for the prospective inflation.
16. The Committee believes that there has been a significant disinflationary progress,
in line with what the Committee had anticipated, but there is still a long way to go to
anchor expectations and return inflation to the target, which requires serenity and
moderation on the conduct of monetary policy. In addition, uncertainty, particularly in
this volatile international environment, recommends caution in the conduct of
monetary policy. The Committee recalled that the incorporation of scenarios and
exogenous v ariables, such as fiscal dynamics or the external scenario, takes place
through their impact on the prospective dynamics of inflation, with no mechanical
relationship with the determination of the interest rate.
17. The domestic scenario is moving in line with what was expected. The conclusion is
that the disinflationary path of core and services inflation continues. In addition, as
anticipated by the Committee, recent data suggest a moderation in economic activity.
Inflation expectations for longer maturities have remained unanchored since the
previous Copom meeting. Finally, inflation projections for the relevant horizon have not
changed significantly, standing above the target.
18. After the scenario evaluation, all members agreed that it was appropriate to reduce
the Selic rate by 0.50 percentage point to adjust the degree of prospective monetary
tightening.
19. The Committee analyzed several prospective scenarios, characterized by different
trajectories in the domestic and international environments. Then, it discussed the
appropriate strategy and cycle length in each of these scenarios. It was decided to
maintain the recent communication, which already includes the appropriate
conditionality in an uncertain environment, specifying the course of action if the
expected scenario is confirmed. Regarding the next steps, the Copom members
unanimously anticipated cuts of 0.50 percentage point in the next meetings and judged
that this pace is appropriate to keep the necessary contractionary monetary policy for
the disinflationary process. This pace brings together, on the one hand, the firm
commitment with the reanchoring of expectations and the disinflationary dynamics
and, on the other hand, the adjustment in the level of monetary tightening in real terms
in face of the more benign inflation dynamics, which was anticipated in the reference
scenario projections.
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COPOM
January 30-31
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20. Finally, the Committee discussed the extension of the monetary policy adjustments
cycle. The Committee perceives the need to maintain a still contractionary monetary
policy in the relevant horizon to consolidate the inflation convergence to the target and
the anchoring of expectations. Copom emphasized again that the extension of the cycle
over time will depend on the inflationary dynamics, especially the components that are
more sensitive to monetary policy and economic activity, on inflation expectations, in
particular the longer-term ones, on its inflation projections, on the output gap, and on
the balance of risks. The Committee maintains its firm commitment to the convergence
of inflation to the target in the relevant horizon and reinforces that the ext ension of
the cycle will reflect the BCB’s legal mandate.
D) Monetary policy decision
21. Considering the evolution of the disinflationary process, the assessed scenarios, the
balance of risks, and the broad array of available information, Copom decided to reduce
the Selic rate by 0.50 percentage point, 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, which includes 2024 and, to a
larger degree, 2025. Without compromising its fundamental objective of ensuring price
stability, this decision also implies smoothing economic fluctuations and fostering full
employment.
22. The current context, characterized by a stage in which the disinflationary process
tends to be slower, with only partial reanchoring of inflation expectations and a
challenging global outlook, requires serenity and moderation in the conduct of
monetary pol icy. The Committee reinforces the need to persist on a contractionary
monetary policy until the disinflationary process consolidates and inflation
expectations anchor around its targets.
23. If the scenario evolves as expected, the Committee members unanimously
anticipate further reductions of the same magnitude in the next meetings, and judge
that this pace is appropriate to keep the necessary contractionary monetary policy for
the disinflationary process. The Committee emphasizes that the total magnitude of the
easing cycle throughout time will depend on the inflation dynamics, especially the
components that are more sensitive to monetary policy and economic activity, on
inflation expectations, in particular the longer-term ones, on its inflation projections, on
the output gap, and on the balance of risks.
24. The following members of the Committee voted for a reduction of 0.50 percentage
point: 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.