BCB COPOM Minutes - Meeting 261
Central bank: bcb | Type: minutes | Date: 2024-03-19

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Minutes of the Meeting of the
Monetary Policy Committee — Copom
March 19-20, 2024
261st
261st Meeting
COPOM
March 19-20
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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 achieve the
inflation targets established by the National Monetary Council.
Date:
March 19-20, 2024
Place: BCB Headquarters’ meeting rooms on the 8th floor (3/19 and 3/20 on the morning)
and 20th floor (3/20 on the afternoon) – Brasilia – DF – Brazil
Starting and ending
times:
March 19: 10:37 am – 11:58 am; 2:13 pm – 5:53 pm
March 20: 10:10 am – 11:09 am; 2:32 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 3/19 and on the
morning of 3/20):
Alan da Silva Andrade Mendes – Department of Foreign Reserves
André Minella – Research Department (also present on the afternoon of 3/20)
André de Oliveira Amante – Open Market Operations Department
Fábio Martins Trajano de Arruda – Department of Banking Operations and Payments System
Marcelo Antonio Thomaz de Aragão – Department of International Affairs (attending on
3/19)
Ricardo Sabbadini – Department of Economics
Other participants André Maurício Trindade da Rocha – Head of the Financial System Monitoring Department
(attending on 3/19 and Arnaldo José Giongo Galvão – Press Office Advisor
on the Arnildo da Silva Correa – Head of the Office of Economic Advisor
morning of 3/20): 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 Regulation 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
Mariane Santiago de Souza – Head of the Governor’s Office
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 (present on the morning of 3/19)
Ricardo Eyer Harris – Head of Office of the Deputy Governor for Regulation
Ricardo Franco Moura – Head of the Prudential and Foreign Exchange Regulation Department
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A) Update of the economic outlook and the Copom’s scenario1
1. The global environment remains volatile, with debates about the beginning of the
monetary policy easing in major economies and the speed with which inflation will fall
in a sustained way in many countries.
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 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 somewhat, but with greater dynamism in
some indicators at the margin, while the labor market remains strong and with
acceleration of real income.
4. Consumer inflation remains on its path of disinflation. The inflation of the
components more sensitive to the economic cycle and the monetary policy stood above
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 baseline scenario, the interest rate path is extracted from the Focus survey and
the exchange rate starts at USD/BRL 4.95 2 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 4.4% for 2024 and 3.9% for 2025.
6. The reduction in prices volatility in emerging countries contrasts with an international
environment that remains volatile. The scenario marked by a sound U.S. economy and
resilient inflation permeates the debate on the sources, challenges, and uncertainties
for the future disinflationary process in that country. Regarding sources, the Committee
discussed the role of the normalization of productive chains and the consequent benign
recomposition of relative prices between goods and services, the slowdown of
commodity prices, Chines e disinflation and, to a greater extent, the role of monetary
policy in the U.S. in reducing inflation in a sustained manner. It was pointed out that, as
in the Brazilian case, the final stage of disinflation is more costly and requires caution in
the conduct of monetary policy. Still in the subject, Copom reaffirmed 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 , as usual, it will focus on
the tra nsmission mechanisms from the external environment into the domestic
inflationary dynamics.
7. Regarding the challenges of the external scenario, in addition to geopolitical
tensions, some subjects were mentioned. Firstly, the speed of disinflation in a scenario
of strong activity and a resilient labor market has once again become the subject of
much debate, besides, for a longer horizon, the role of fiscal impacts on the aggregate
demand and provision of liquidity and the channeling of credit resources to the
economy. Finally, regarding uncertainties for the prospective disinflationary process,
Copom discussed, on a global perspective, the response functions of monetary policy in
1 Unless explicitly stated otherwise, this update considers changes since the January Copom meeting (260 th
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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major economies, the role of relative prices between goods and services, the
relationship between the labor market and inflation, the interaction between monetary
and fiscal policy and, lastly, the global financial cycle and risk aversion 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 global
economy and their respective transmission channels to the domestic economy.
8. Regarding the domestic economic activity, Copom firstly debated the release of GDP
for 2023Q4, especially emphasizing the growth composition of demand components.
A reduction in the growth impetus of household consumption compared with the
previous quarters and to auxiliary monthly surveys was noticed . When assessing
consumption over the recent years, the prevailing view was, even so, that consumption
was sustained by the labor market dynamics, both at the employment and wages level,
the increased social benefits, the slow deleveraging of households and, lastly, the
disinflationary process that favors the expansion of real disposable income.
9. For the prospective scenario, due to the factors mentioned above, as well as to the
increase of the minimum wage, the reduction of the impact of the monetary tightening
over time, fiscal transfers, and the recovering stage of the credit cycle, the assessment
that consumption will continue resilient persists. Furthermore, Copom mentioned that
some high frequency indicators would allow a reading that corroborates this argument,
including some surprise in the more recent releases of services and trade surveys,
raising the growth projection for the quarter. The Committee also discussed the
reasons for the drop in investment momentum over 2023, highlighting increased
uncertainty and restrictive financial conditions. The Committee noticed that the
increased appetite for credit granting as well as lower interest rates and the easing of
financial conditions suggest a more favorable scenario for investment over 2024, as
already observed in 2023Q4. In short, released activity data reinforce the perception of
a scenario characterized by economic activity resilience, although no substantial change
was observed in the growth prospect.
10. 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.
11. The Committee discussed thoroughly the labor market and assessed that the
current wage increases may be linked to some extent to pressures in the labor market.
Some members recalled that, over the latest meetings, the Committee has emphasized
data relative to earnings, as there remains a wide debate about the tightness of the
labor market in view of methodological issues regarding employment surveys, the
pandemic impacts, and the labor reform. Some members perceived that the
productivity recovery in 2023 mostly occurred in agriculture and livestock, while
pressures on earnings were widespread, suggesting that pressured earnings should not
be mainly explained by productivity gains, but by the narrowing of the output gap. In its
analysis, the Committee was the refore more concerned about the possible effects of
increased real gains in the more recent period and the growth acceleration seen in
overall income data on the prospective dynamics of services inflation. The Committee
continued its discussion on 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.
Moreover, Copom stressed that it will co ntinue incorporating labor market data into
the analysis with no mechanical or definitive view about any impacts or relationships
whatsoever. Copom will continue to pay attention to the dynamics of income stemming
from various surveys to better evaluate the degree of slack in the labor market and its
potential impacts on the services inflation.
12. Despite the restrictive monetary conditions, Copom emphasized that the cycle of
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monetary easing is already being transmitted to the credit market. There are signs of
increased credit granting and reduction in current interest rates on new operations, also
helped by an incipient growing appetite of financial institutions to offer credi t. Since
the previous meeting, the capital market has also shown greater dynamics.
13. 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.
14. Copom judged that the disinflationary dynamics did not diverge significantly from
what was expected but evaluates that the inflation scenario seems more uncertain. On
the one hand, short-term food projections have somewhat slowed down, reverting the
recent increases, while industrial prices continue on a benign trajectory. On the other
hand, the recurrence of inflationary surprises on services inflation, particularly on the
underlying components and labor-intensive items, raises doubts about the speed of the
prospective disinflation. Copom evaluates that a relevant part of the services
disinflation was due to the spillover from disinflations in food and industrial goods and
the intensification of the disinflationary process, now in its second stage, will be greatly
associated with the labor market and aggregate demand scenario. The prospective
evolution of the output 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 and
without corresponding productivity gains, could potentially slow down inflation
convergence, impacting notably services inflation 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 substantially but is more uncertain. In the end, it was unanimously
concluded that a contractionary and cautious monetary policy was needed to reinforce
the disinflationary dynamics.
15. Inflation expectations remain unanchored and are a cause for concern. Copom
mentioned that a scenario of expectations above the target for a prolonged period
requires a closer monitoring to ensure, even in this scenario, the achievement of the
inflation target. 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 Brazilian economic policy.
16. 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. The Committee judges that the
domestic and international environments are more uncertain, requiring caution on the
conduct of monetary policy.
C) Discussion of the conduct of monetary policy
17. 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.
18. The baseline scenario for inflation and economic activity did not differ substantially
from what was projected. Activity is resilient and labor market , dynamic. Both income
and credit have behaved in such a way as to mitigate the slowdown in activity in the
recent period, supporting the view that the scenario continues to be of gradual
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deceleration. In the labor market, the emphasis was on the acceleration of earnings and
the overall income , reinforcing the diagnosis of a dynamic labor market. Given the
difficulty of reaching a firm conclusion on the time lags between the labor market and
economic activity, the Committee will continue to monitor data thoroughly. Regarding
inflation, as expec ted in the second stage of disinflation, the speed of disinflation is
slowing down, requiring serenity and moderation in the conduct of monetary policy.
19. The Committee believes that there is greater uncertainty in the domestic and
international contexts. Internationally, the disinflationary scenario is more uncertain,
due to the context of resilient activity in the U.S. and its impact on global financial
conditions. In addition, the impact of monetary policy on activity and inflation also
creates uncertainty about the speed of disinflation in several countries. Regarding
domestic inflationary dynamics, while on the one hand we see benign behavior in food
and industrial goods, on the other hand, due to resilient activity and the latest releases,
there are doubts about the speed of disinflation in services. The Committee noted that
a slower disinflationary process, both domestically and globally, does not constitute the
baseline scenario but has been incorporated as a source of uncertainty. This increased
uncertainty recommends caution in the conduct of monetary policy. The Committee
recalled that the incorporation of scenarios and exogenous variables, such as f iscal
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.
20. After the scenario evaluation, all members agreed that it was appropriate to reduce
the Selic rate by 0.50 percentage points to adjust the degree of prospective monetary
tightening.
21. The Committee then started debating the future signaling of the conduct of
monetary policy. It gave a positive assessment of the use of a conditional signal for
subsequent meetings over the last few meetings, reinforcing that it has fulfilled its role
of coordinating expectations, increasing the power of monetary policy, and reducing
volatility. It was noted that, so far, the benefits of signaling with an extended horizon
have outweighed the costs in both the ex-ante and ex-post assessment.
22. The debate then turned to communication in a scenario where greater flexibility is
required to conduct the appropriate monetary policy to achieve the inflation target.
Copom assessed the convenience of some indication for the June decision, for which it
had not yet made any announcement. The baseline scenario had not changed
substantially but given its uncertainties, it was deemed appropriate to have greater
monetary policy flexibility. Even though the communication already contained a built -
in conditionality, Copom felt that it did not provide the required flexibility. In addition,
it was argued that a late withdrawal, possibly seen as an unfulfilled promise, should be
avoided because it could have an impact on the future credibility of the communication
and cause excessive volatility. After all the arguments, the Committee unanimously
concluded that the more uncertain scenario reduced the benefit of future signaling and
increased its costs. This assessment led the Committee to communicate that it
anticipated a reduction of the same magnitude at the next meeting, stressing that the
change in communication was due to a change in uncertainty and not in the baseline
scenario. This change only reflects a cost -benefit analysis of the use of this additional
monetary policy instrument. Finally, it was emphasized that it would be a mistake to
interpret the change in the future signaling as an indication of a change in the monetary
policy cycle compatible with the baseline scenario.
23. The Committee believes that information provided by updating the analyzed data
sets will be particularly important in defining the terminal interest rate and its
respective path. Some members also argued that if prospective uncertainty remains
high in the future, a slower pace of monetary easing may prove appropriate, for
whatever terminal rate is desired. The Committee unanimously maintained its view that
the interest rate and its respective path will be those necessary to bring inflation back
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to its target in the relevant monetary policy horizon.
24. 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,
particularly 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 extension of
the cycle will reflect the BCB’s legal mandate.
D) Monetary policy decision
25. 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 points, to 10.75% 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.
26. 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.
27. The committee judges that the baseline scenario has not changed substantially. Due
to heightened uncertainty and the need for more flexibility in the conduct of monetary
policy, the Committee members unanimously decided to communicate that, if the
scenario evolves as expected, they anticipate a reduction of the same magnitude in the
next meeting. The Committee judges that this monetary policy stance is appropriate to
keep the necessary contractionary monetary policy for the disinflationary process.
28. 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.
29. The following members of the Committee voted for a reduction of 0.50 percentage
points: 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.