BCB COPOM Minutes - Meeting 239
Central bank: bcb | Type: minutes | Date: 2021-06-15

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Minutes of the Meeting of the
Monetary Policy Committee — Copom
June 15-16, 2021
239th
239th Meeting
COPOM
June 15-16
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he members of Copom 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.
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: June 15-16, 2021
Place: BCB Headquarters’ meeting rooms on the 8 th floor – Brasilia – DF – Brazil
Starting and
ending times:
June 15: 10:18 AM – 12:57 PM; 2:39 PM – 7:00 PM
June 16: 2:32 PM – 6:40 PM
In attendance:
Members of the Copom Roberto Oliveira Campos Neto – Governor
Bruno Serra Fernandes
Carolina de Assis Barros
Fabio Kanczuk
João Manoel Pinho de Mello
Maurício Costa de Moura
Otávio Ribeiro Damaso
Paulo Sérgio Neves de Souza
Department Heads in
charge of technical
presentations
(June 15):
Alan da Silva Andrade Mendes – Department of Foreign Reserves
André de Oliveira Amante – Open Markets Operations Department
André Minella – Research Department (also present on June 16)
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
(June 15):
Arnildo da Silva Correa – Head of the Office of Economic Advisor
Eduardo José Araújo Lima – Head of the Deputy Governor for Economic Policy’s Office
Euler Pereira Gonçalves de Mello – Deputy Head of the Research Department
Julio Cesar Costa Pinto – Head of the Deputy Governor for Monetary Policy’s Office
Leonardo Martins Nogueira – Executive Secretary
Olavo Lins Romano Pereira – Deputy Head of the Department of International Affairs
Pedro Henrique da Silva Castro – Deputy Head of the Department of Economics
Rafael Mendonça Travassos Andrezo – Head of the Governor’s Office
239th Meeting
COPOM
June 15-16
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A) Update of economic outlook and Copom’s baseline scenario1
1. Regarding the global outlook, fiscal and monetary s timuli in some developed
countries promote a robust economic recovery. Due to economic slack, central bank
communication from major economies suggests monetary stimuli will last long.
However, uncertainty remains high and a new round of market discussion r egarding
inflationary risks in these economies could result in a challenging environment for
emerging economies.
2. Turning to the Brazilian economy, despite the intensity of the second wave of the
pandemic, recent indicators continue to evolve better than expected, imp lying relevant
revisions in growth forecasts. Risks to economic recovery were significantly reduced.
3. The various measures of underlying inflation are above the range compatible with
meeting the inflation target.
4. Inflation expectations for 2021, 2022, and 2023 collected by the Focus survey are
around 5.8%, 3.8%, and 3.25%, respectively.
5. The persistence of inflationary pressure was more intense than expected, especially
in industrial goods. Additionally, the slow pace of supply normalization, the resilience
of demand and implications of the energy scenario deterioration over electricity fares
contribute to keeping inflation under pressure in the short run, despite the Brazilian
real (BRL) recent appreciation. The Committee continues to closely monit o r the
evolution of shocks and their possible second-round effects, as well as the behavior of
service prices as the immunization effects over the economy become more relevant.
6. The Copom's inflation projections in its baseline scenario, with interest rate path
extracted from the Focus survey and exchange rate starting at USD/BRL 5.05 2 a nd
evolving according to the purchase power parity (PPP), stand around 5.8% for 2021 and
3.5% for 2022. This scenario assumes a path for the Selic rate that ends 2021 at 6.25%
p.a. and rises to 6.50% p.a. in 2022. In this scenario, inflation projections for
administered prices are 9.7% for 2021 and 5.1% for 2022.
The energy flag is assumed
to be neutral, remaining at "red level 1" in December each year.
B) Risks around the baseline inflation scenario
7. The Copom’s baseline scenario for inflation encompasses r isk factors in both
directions.
8. On the one hand, a possible reversion, even if partial, of the recent increase in the
price of international commodities measured in local currency would produce a lower-
than-projected inflation in the baseline scenario.
9. On the other hand, further extensions of fiscal policy responses to the pandemic that
increase aggregate demand and deteriorate the fiscal path may pressure the country's
risk premium. Despite the improvement of debt sustainability indicators, the elevated
fiscal risk creates an upward asymmetry in the balance of risks, i.e., in the direction of
higher-than-expected paths for inflation over the relevant horizon for monetary policy.
1 Unless explicitly stated otherwise, this update takes into account changes that occurred since the March Copom meeting
meeting).
2 Value obtained according to the usual procedure of rounding the average USD/BRL exchange rate observed on the fiv e
business days ending on the last day of the week before the Copom meeting.
239th Meeting
COPOM
June 15-16
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C) Discussion about the conduct of monetary policy
10. Regarding the international outlook, the Committee assessed that the fiscal and
monetary stimuli are promoting robust economic growth and that the latest inflation
releases were surprising in several countries, both developed and emerging. For the
Committee, further discussions about the risk of permanent increase in inflation in the
United States could result in a challenging environment for emerging economies. The
Copom noted that inflation of tradable goods in Brazil was higher than in several of its
peer countries and that this process may reverse in the future, creating a new downside
risk to inflation. The recent rise in the weight of tradable items in the inflation index
should increase the relevance of this event.
11. T he Copom members discussed the evolution of domestic economic activity in light
of the available information and indicators. They considered that despite the intensity
of the second wave of the pandemic, the latest available data have surprised positively.
The duration of the problems of the supply chai ns were also discussed. For the
Committee, the second half of the year should bring a robust recovery, as the effects
of the vaccination are felt more broadly. The Committee noted that median Focus
survey growth projections were significantly revised and became more optimistic than
those in its baseline scenario. The Committee also assessed that the downside risks to
inflation stemming from risks to the economic recovery have reduced significantly.
12. The Copom members then debated the level of economic slack. Although the
economic slack as a whole is rapidly returning to the late 2019 level, the Committee
considered that the pandemic is still producing heterogeneous effects across economic
sectors, with consequences for recent and prospective inflation dynamics. T he Copom
judges that economic activity and formal labor market data suggest that the overall
slack has declined faster than anticipated, despite the increase in the unemployment
rate.
13. Next, the Copom discussed the implementation of monetary policy, consider ing not
only the baseline scenario, but also the balance of risks for inflation. According to the
baseline scenario, which uses the interest rate path extracted from the Focus survey,
inflation projections are in line with the target for 2022. The Committee judged that
despite the more positive recent evolution, fiscal risks continue implying an upward bias
in the projections. This asymmetry in the balance of risks affects the appropriate degree
of monetary stimulus, thus justifying a path for monetary polic y that is less stimu lat i ve
than the path used in the baseline scenario.
14. The Copom then evaluated different normalization paths for the Selic rate.
Considering the baseline scenario and the balance of risks, the Committee assessed that
–should there b e no changes in the inflation conditioning factors – s ub s eq uent
uninterrupted interest rate increases, up to the level considered neutral , imply
projections around the inflation target in the relevant horizon. Therefore, a
normalization of the interest rate to this level has become appropriate. The Committee
decided to communicate this decision, maintaining transparency about the monetary
policy path implied in its projections, and reaffirming that this view will be
systematically reassessed as changes in inflation determinants or in the balance of risks
occur.
15. In light of the revision of the monetary policy path implied in its projections, the
Committee evaluated a quicker reduction of monetary stimulus already on this
meeting. Considering the various alternative scenarios, the Committee decided that the
best strategy would be to maintain the current pace of stimulus reduction but
highlighting the possibility of a quicker adjustment in the next meeting. In the
Committee's view, this strategy has the following tw o advantages.
239th Meeting
COPOM
June 15-16
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16. First, to accumulate more information regarding the traditional determinants of
inflation and, in particular, some of its qualitative aspects: (i) the evolution of more
inertial prices, as the services sector recovers, and (ii) the behavior of inflation
expectations, both from the Focus survey and from market prices.
17. Second, to clarify the distinction between transparency about conditional
projections and invariant monetary policy intentions. The unequivocal commitment of
the Banco Central do Brasil is to inflation convergence to its target over the relevant
horizon, and future monetary policy steps are freely adjusted to this objective as new
information becomes available. Thus, indications about the future path of interest
rates, whether for the next meeting or for the final level, are useful elements for
understanding the response function of monetary policy. The information obtained in
the period between Copom meetings modifies the assumptions present in the baseline
scenario and in the balance of risks, and naturally changes the future path of interest
rates.
D) Monetary policy decision
18. Taking into account the baseline scenario, the balance of risks, and the broad array
of available information, the Copom unanimously decided to increase the Selic rate by
0.75 p.p. to 4.25% p.a. The Committee judges that this decision r eflects its baseline
scenario for prospective inflation, a higher-than-usual variance in the balance of risks,
and it is consistent with convergence of inflation to its target over the relevant horizon
for monetary policy, which includes 2022. Without comp romising its fundamental
objective of ensuring price stability, this decision also implies smoothing of economic
fluctuations and fosters full employment.
19. At this moment, the Copom's baseline scenario indicates, as appropriate, a
normalization of the polic y rate to a level considered neutral. This adjustment is
necessary to mitigate the dissemination of the temporary shocks to inflation. However,
the Committee again emphasizes that there is no commitment with this plan, and that
future steps of monetary pol icy could be adjusted to assure the achievement of the
inflation target.
20. For the next meeting, the Committee foresees the continuation of the monetary
normalization process with another adjustment of the same magnitude. However, a
deterioration of inflation expectations for the relevant horizon may require a quicker
reduction of the monetary stimulus. The Copom emphasizes that its view will also
depend on the evolution of economic activity, the balance of risks, and how these
factors affect inflation projections.
21. The following members of the Committee voted for this decision: Roberto Oliveira
Campos Neto (Governor), Bruno Serra Fernandes, Carolina de Assis Barros, Fabio
Kanczuk, João Manoel Pinho de Mello, Maurício Costa de Moura, Otávio Ribe i ro
Damaso, and Paulo Sérgio Neves de Souza.