BCB COPOM Minutes - Meeting 264
Central bank: bcb | Type: minutes | Date: 2024-07-30

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Minutes of the Meeting of the
Monetary Policy Committee — Copom
July 30-31, 2024
264th
264th Meeting
COPOM
July 30-31
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Date:
July 30-31, 2024
Place: BCB Headquarters’ meeting rooms on the 8th floor (7/30 and 7/31 on the morning)
and 20th floor (7/31 on the afternoon) – Brasilia – DF – Brazil
Starting and ending
times:
July 30: 10:06 am – 12:02 pm; 2:49 pm – 6:12 pm
July 31: 10:10 am – 11:25 am; 2:32 pm – 6:35 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 7/30 and on the
morning of 7/31):
Alan da Silva Andrade Mendes – Department of Foreign Reserves
André Minella – Research Department (also present on the afternoon of 7/31)
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 7/30 and Arnaldo José Giongo Galvão – Press Office Advisor
on the morning of 7/31): 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
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 7/30)
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
Lucas Alves Freire – General Counsel
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 – Deputy Head of the Department of Statistics
Ricardo Eyer Harris – Head of Office of the Deputy Governor for Regulation
Simone Miranda Burello – Advisor in the Office of the Deputy Governor for Monetary Policy
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.
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A) Update of the economic outlook and the Copom’s scenario1
1. The global environment remains adverse because of the uncertainty about the
effects and extension of the easing cycle in the United States and the dynamics of
activity and inflation 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 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 more strength than expected by Copom.
4. The disinflation measured by the headline IPCA has slowed down, while various
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 4.1%
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 5.552 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 tariff flag is assumed to be “green” in December of years 2024
and 2025. In an alternative scenario presented, the assumption of a constant interest
rate over the relevant monetary policy horizon is used.
6. Copom maintained its usual understanding, without any change, that the relevant
horizon for monetary policy is six quarters ahead, now corresponding to the first
quarter of 2026. In line with the continuous inflation- targeting system established by
the Decree 12,079/2024, the Committee chose to communicate not only the calendar
year projections, but also the relevant horizon projections, thus contributing to the
transparency in the monetary policy communication.
7. In both scenarios presented – reference and alternative – there is a process of
disinflation over the horizon, but the projection for the relevant horizon is above the
inflation target of 3%. In the reference scenario, the four -quarter inflation projection
for the first quarter of 2026 is 3.4% and, in the alternative scenario, 3.2%.
8. Copom's inflation projections for the calendar years, in the reference scenario, stand
at 4.2% for 2024 and 3.6% for 2025. In this scenario, inflation projections for
administered prices are 5.0% for 2024 and 4.0% for 2025. In the alternative scenario
with constant interest rate throughout the relevant horizon, inflation projections stand
at 4.2% for 2024 and 3.4% for 2025.
9. The Committee judges that the global environment remains adverse. Less synchrony
in the easing cycles, which have already begun in some advanced economies and are yet
to begin in others, contributes to the volatility of market variables. In addition, it was
noted that monetary authorities have indicated cautious cycles, with corresponding
impacts on the pricing of financial assets. Finally, capital flows al so reflect a global
phenomenon of risk aversion, which, depending on the fundamentals of each emerging
market economy, pressures the exchange rate with variable intensity. In the case of the
1 Unless explicitly stated otherwise, this update considers changes since the June Copom meeting (263 rd
meeting).
2 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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U.S. economy, uncertainties about the pace of economic activity persist, since, on the
one hand, current data suggests resilience, and, on the other hand, employment data
slowed down and financial conditions have remained tight for a n already prolonged
period. In any case, a scenario of a gradual decline in inflation and activity and a cautious
start to monetary easing is perceived.
10. In emerging market economies, faced with a more challenging scenario, the cycle
of interest rate cuts has continued cautiously in some countries and has been
interrupted in others. The exchange rates of emerging market economies have
depreciated recently, reflecting a more challenging scenario for these economies.
11. Copom reinforced that there is neither mechanical relationship between the
conduct of the U.S. monetary policy and the determination of the domestic policy
interest rate nor between the exchange rate and the determination of the domestic
interest rate. As usual, the Committee will focus on the transmission mechanisms from
the external environment to the domestic inflationary dynamics and its effect on the
prospective scenario. It was also emphasized that a scenario of greater global
uncertainty and more abrupt exchange rate movements requires greater caution in the
conduct of domestic monetary policy.
12. Economic activity and labor market data continue to exhibit more strength than
expected by Copom. This movement occurs in a context of an output gap close to
neutrality, making the process of inflation convergence to the target more challenging.
The dynamism of higher frequency indicators, such as of trade and services, reinforces
the prospect of resilience in domestic activity and sustained consumption over time, in
contrast to the scenario of gradual deceleration originally anticipated by the
Committee. R egarding the labor market, it was pointed out that the level of
employment, the unemployment rate, and income have been systematically surprising.
The Committee again assessed that these recurring surprises point to high dynamism
in the labor market, which has shown to be tight.
13. 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.
14. The Committee closely monitors how the recent developments on the fiscal side
impact monetary policy and financial assets. Moreover, it was noted that more recent
market agents' perception of public spending growth and of the sustainability of the
current fiscal framework, coupled with other factors, has had a significant impact on
asset prices and expectations. The Committee stresses that a credible fiscal policy,
committed to debt sustainability, contributes to the anchoring of inflation expectations
and to the reduction in the risk premia of financial assets, therefore impacting monetary
policy. Synchronous and 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. The Committee unanimously believes that the reanchoring of inflation
expectations, seen as an essential element to ensure inflation convergence to the
target, should be pursued. The Committee believes that the conduct of monetary policy
is a key factor in reanchoring expectations and will continue to make decisions that
safeguard credibility and, consequently, reduce the cost of disinflation. The Committee
will not shy away from its commitment of reaching the inflation target and understands
the fundamental role of expectations in the inflation dynamics.
16. Recent movements in some of the conditioning factors for inflation dynamics, such
as inflation expectations and the exchange rate, were thoroughly discussed. It was
noted that, if these movements are persistent, the resulting inflationary impacts may
be significant and will be duly incorporated by the Committee. As a result, the
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Committee considered that it is time for diligent monitoring of the determinants of
inflation and greater vigilance in face of a more challenging scenario.
17. The credit cycle remains benign, with volume expansion and rate reductions in most
credit lines. However, some members emphasized again that the recent increase of
longer-term rates could result in lower credit market dynamics. In turn, the capital
market funding remains strong. These members highlighted the importance of longer
vertices in the yield curve in the determination of credit supply and demand.
18. The Committee assessed that inflation data suggested a path that did not diverge
significantly from what was expected but that the disinflationary process has slowed
down in the more recent period. Industrial goods and food -at-home inflation rates
maintained their recent trajectories, no longer contributing to disinflation at this stage
of the disinflationary process. At the same time, services inflation, which has greater
inertia, plays a major role in the disinflationary dynamics at the current st age. Copom
members then discussed the role of labor market dynamics and inflation expectations
in determining services inflation. Copom concluded that the disinflationary process has
slowed down and that current inflation levels above the target – in a context of dynamic
economic activity – make inflation convergence to the target more challenging.
19. Copom concluded that the inflation outlook has become more challenging, with the
increase of medium -term inflation projections, even conditioned on a higher interest
rate path. There was a unanimous conclusion on the need for a n even more cautious
monetary policy and a diligent monitoring of the unfolding scenario.
20. 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 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. During the discussions, all members agreed that there are
more upside risks for inflation, and several members even emphasized the asymmetry
of the balance of risks.
21. The Committee judges that the domestic and international environments require
even greater caution on the conduct of monetary policy. In particular, the inflationary
impacts of the movements of market variables and inflation expectations, if persistent,
corroborate the need for more vigilance.
C) Discussion of the conduct of monetary policy
22. 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.
23. The Committee unanimously decided to maintain the Selic rate at 10.50%.
Regarding the domestic economy , the labor market and the economic activity, in
particular household consumption, have been surprising, diverging from the expected
slowdown scenario. Furthermore, inflation projections for the relevant monetary policy
horizon increased again, despite a new rise in the Selic rate path extracted from the
Focus survey. Similarly, inflation expectations have shown further deanchoring since
the previous meetin g. Moreover, the external environment remains adverse, because
of the uncertainty about the effects and extension of the easing cycle in the United
States.
24. Thus, the Committee considered that the monetary policy should continue being
contractionary for sufficient time at a level that consolidates both the disinflation
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process and the anchoring of expectations around the target.
25. The scenario marked by higher projections and more upside inflation risks is
challenging, and the Committee believes that the unfolding of the scenario will be
particularly important to define the next monetary policy steps. Therefore, the
Committee unanimously believes that the current stage is of even greater caution and
of diligent monitoring of inflation conditioning factors, without committing to future
strategies. In the light of this mon itoring, the Committee will assess which is the best
strategy. On the one hand, whether the strategy of maintaining the interest rate for a
sufficiently long time will bring inflation to the target over the relevant horizon and, on
the other hand, Copom unanimously reinforced that it will not hesitate to raise the
interest rate to ensure inflation convergence to the target if it deems it appropriate. As
usual, the strategies adopted by the Committee will reflect its commitment of reaching
the inflation target, while also aiming to reanchor inflation expectations so as t o
minimize the cost of disinflation. The Committee will remain vigilant and reminds that
potential future changes in the interest rate will be determined by the firm
commitment of reaching the inflation target.
D) Monetary policy decision
26. Considering the evolution of the disinflationary process, the assessed scenarios, the
balance of risks, and the broad array of available information, Copom decided to
maintain the Selic rate at 10.50% 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
ensuring price stability, this decision also implies smoothing economic fluctuations a nd
fostering full employment.
27. The current context, characterized by a stage in which the disinflationary process
tends to be slower, further deanchoring of inflation expectations, and a challenging
global outlook, requires serenity and moderation in the conduct of monetary policy.
28. The Committee unanimously decided to keep the interest rate unchanged,
highlighting that the uncertain global scenario and the domestic scenario, marked by
resilient economic activity, an increase in its own inflation projections and deanchored
expectations require diligent monitoring and even greater caution. The Committee also
stresses that monetary policy should continue being contractionary for sufficient time
at a level that consolidates both the disinflation process and the anchoring of
expectations around the target. The Committee will remain vigilant and reminds that
potential future changes in the interest rate will be determined by the firm
commitment of reaching the inflation target.
29. 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.