BCB COPOM Minutes - Meeting 251
Central bank: bcb | Type: minutes | Date: 2022-12-06

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Minutes of the Meeting of the
Monetary Policy Committee — Copom
December 6-7, 2022
251st
251st Meeting
COPOM
December 6-7
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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 comply with
the inflation targets established by the National Monetary Council. This document r epresents
Copom's best effort to provide an English version of its policy meeting minutes. In case of
inconsistency, the Portuguese version prevails.
Date:
December 6-7, 2022
Place: BCB Headquarters’ meeting rooms on the 8th floor (12/6 and 12/7 on the morning)
and 20th floor (12/7 on the afternoon) – Brasilia – DF – Brazil
Starting and ending
times:
December 6: 10:06 AM – 11:46 AM; 2:10 PM – 6:27 PM
December 7: 10:14 AM – 11:18 AM; 2h35 PM – 6:10 PM
In attendance:
Copom Members Roberto de Oliveira Campos Neto – Governor
Bruno Serra Fernandes
Carolina de Assis Barros
Diogo Abry Guillen
Fernanda Magalhães Rumenos Guardado
Maurício Costa de Moura
Paulo Sérgio Neves de Souza
Renato Dias de Brito Gomes
Department Heads in
charge of technical
presentations
(attending on 12/6 and
and on the morning of
12/7):
Alan da Silva Andrade Mendes – Department of Foreign Reserves
André Minella – Research Department (also present on the afternoon of 12/7)
André de Oliveira Amante – Open Market Operations Department
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
(attending on 12/6 and
on the morning of
12/7):
Arnildo da Silva Correa – Head of the Office of Economic Advisor
Edson Broxado de França Teixeira – Head of the Deputy Governor for Supervision’s Office
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
Fernando Alberto G. Sampaio de Cavalcante Rocha – Head of the Department of Statistics
Flavio José Roman – General Counsel
Gilneu Francisco Astolfi Vivan – Head of the Financial System Monitoring Department
Julio Cesar Costa Pinto – Head of the Deputy Governor for Monetary Policy’s Office
Leonardo Martins Nogueira – Executive Secretary
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
Pedro Henrique da Silva Castro – Deputy Head of the Department of Economics
Ricardo Franco Moura – Head of the Prudential and Foreign Exchange Regulation Department
251st Meeting
COPOM
December 6-7
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A) Update of economic outlook and Copom’s scenario1
1. The global environment remains adverse and volatile, marked by prospects of below-
potential 2023 global growth. The tightening of financial conditions in major
economies, difficulties in energy supply to Europe, and a challenging scenario for
growth in China, partly due to the Covid -19 policy in th e country, reinforce a slowing
global growth outlook in the coming quarters.
2. The inflationary environment remains challenging. There is a normalization in supply
chains and an accommodation in the prices of major commodities in the recent period,
which sho uld lead to a moderation in global goods -related inflationary pressures. In
turn, the low level of labor market slack in some economies, coupled with high current
inflation and a high degree of diffusion, suggests that inflationary pressures on the
services sector should last longer.
3. The process of normalization of monetary policy in advanced economies continues
towards contractionary rates synchronized across countries, tightening financial
conditions, impacting economic growth expectations, and raising th e risk of abrupt
repricing movements in the markets. The Committee noted a stronger market
sensitivity of financial assets to fiscal fundamentals, including in advanced economies,
and lower liquidity in several markets. This environment calls for greater caution in the
conduct of economic policies also by emerging economies.
4. Turning to the Brazilian economy, the set of indicators released since the previous
meeting corroborates the scenario of slowdown in the growth expected by the
Committee. The release o f the third quarter GDP figures suggested a more moderate
growth rate than in previous quarters, despite expansion in all components of demand.
Similarly, the labor market continues to recover, but at a slower pace than in previous
months.
5. Despite the rece nt reduction, especially on items which are more volatile and
affected by tax measures, consumer inflation remains high. Items related to industrial
goods, reflecting the more intense decrease in producer prices and the reduction of
pressures in global value chains, also showed deceleration, albeit still slow. The inflation
of the components more sensitive to the economic cycle and the monetary policy,
which present greater inflationary inertia, remain above the range compatible with
meeting the inflation t arget, albeit showing some marginal moderation. Inflation
expectations for 2022, 2023, and 2024 collected by the Focus survey are around 5.9%,
5.1%, and 3.5%, respectively.
B) Scenarios and risk analysis
6. In the reference scenario, the interest rate path is extracted from the Focus survey,
and the exchange rate starts at USD/BRL 5.252 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
onwards. Moreover, the energy flag is assumed to be “green” in December 2022 and
“yellow” in December 2023 and 2024. In this scenario, Copom’s inflation projections
stand at 6.0% for 2022, 5.0% for 2023, and 3.0% for 2024. Inflation projections for
administered prices are - 3.6% for 2022, 9.1% for 2023, and 4.2% for 2024. The
Committee decided again to emphasize the six -quarter-ahead horizon, which reflects
the relevant horizon, mitigates the primary effects from the tax changes but
incorporates their second -round effects. On this horizon, which refers to the second
quarter of 2024, the 12- month inflation projection stands at 3.3%. The Committee
1 Unless explicitly stated otherwise, this update considers changes that occurred since the October Copom
meeting (250th meeting).
2 Value obtained according to the usual procedure of rounding the average USD/BRL exchange rate observed
on the five business days ending on the last day of the week before the Copom meeting.
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December 6-7
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judges that the uncertainty in its assumptions and projections is higher than usual.
7. The Committee discussed the speed of the global disinflation process. On the one
hand, the relaxation of pressures on global production chains, as well as the recent drop
in commodity prices, indicate that the movement should continue in the short term,
especially in the industrial goods, energy, and food segments. On the other hand, the
Committee discussed that, given the spread of inflationary pressures to the services
segment, which has a more inertial nature, in an environment of tight labor mar kets in
several countries, the disinflation process should be non-linear and slower than that
observed in recent episodes.
8. Thus, the Committee continues to assess that the commitment and determination of
central banks to reduce inflationary pressures and anchor expectations consolidate a
global scenario of longer tightening of financial conditions, with interest rates at the
end of the tightening cycle maintained for a sufficiently long period at contractionary
levels, raising the risk of a more pronounced global deceleration.
9. The Committee discussed two recent facts while analyzing the international
markets. Firstly, it continues to assess that markets are more sensitive to developments
that affect fiscal fundamentals, due to the combination of higher interest rates and
sovereign debt at historically high levels. In addition, the Committee discussed the
lower liquidity present in sovereign bond markets, possibly due to greater uncertainty
in the interest rate dynamics, the reversal of long -term asset purchase policies and
regulatory changes. These issues require monitoring and may also impact assets from
emerging economies more strongly.
10. Data on economic activity in Brazil continues to indicate a more moderate pace of
marginal growth. The release of the third quarter GDP figures indicates a reduction in
the pace of growth, especially in some of the more cyclical components. Nevertheless,
growth was observed in all demand components and, in the supply side, growth in
industry and services. Moreover, labor market data also indicate a reduction in the pace
of job openings, but still with positive marginal net hirings. The set of released data,
including the drop in confidence indicators and the reduction in credit granting,
together with the lagged effects of monetary policy, reinforc e the Committee's
expectation of a slowdown in the pace of economic activity, which should worsen over
the coming quarters.
11. The inflationary outlook was then discussed, based on the more recent information.
Some members noted the benign movement of commodities in BRL, highlighting
additional downside risks ahead. Other members emphasized the volatile nature of
these prices in an environment of pressured inventories. Finally, all members evaluated
that current inflation did not surprise significantly in relation to expectations or
substantially changed the understanding about future inflation dynamics. Moreover,
they emphasized that disinflation in services and core inflation – components with
greater inertia – will require increased attention and perseverance in the conduct of
monetary policy.
12. The Committee discussed extensively the impacts of different fiscal scenarios on
inflation. In its analysis, the Committee reiterated the different channels through which
fiscal policy can affect inflation not only via the primary effects of aggregated demand
but also via asset prices, the degree of economic uncertainty, inflation expectations,
and neutral interest rate. The Committee evaluated that changes in parafiscal policies
or the reversal of structural reforms that lead to a less efficient allocation of resources
might reduce the power of monetary policy. In the different exercises analyzed, it was
evaluated that the final effect, either on inflation or on activity, will depend on both the
combination and the magnitude of the fiscal and parafiscal policies. Furthermore, it was
highlighted that the existence of economic slack and the confidence in the debt
sustainability are determining factors for an expansionary fiscal policy to achieve the
aimed impacts on the economic activity. In an environment of a narrow output gap, the
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impact of significant fiscal stimulus on the path of inflation tends to outweigh the aimed
impacts on economic activity.
13. The Committee believes that there is still a lot of uncertainty about the prospective
fiscal scenario and that the moment requires caution in risk assessment. The Committee
reiterates that it will continue to monitor future fiscal policy developments and their
potential impacts on prospective inflation dynamics.
14. It 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; (ii) the heightened uncertai nty
about the country's future fiscal framework and additional fiscal stimuli that support
aggregate demand, partially incorporated in inflation expectations and asset prices; and
(iii) an output gap tighter than the one currently adopted by the Committee in its
reference scenario, especially in the labor market. Among the downside risks, it should
be noted (i) an additional reduction in the prices of international commodities
measured in local currency; (ii) a greater -than-projected deceleration of global
economic activity; and (iii) the continuity of tax cuts assumed to be reversed in 2023.
The current scenario, particularly uncertain on the fiscal side, requires serenity when
evaluating risks. The Committee will closely monitor future developments in fisc al
policy and, in particular, its effects on asset prices and inflation expectations, with
potential impacts on the dynamics of future inflation.
C) Discussion about the conduct of monetary policy
15. Copom discussed the conduct of monetary policy, considering the set of projections
evaluated, as well as the balance of risks for inflation.
16. The 12-month inflation projection for the second quarter of 2024, in the scenario
using the interest rate trajectory ext racted from the Focus Survey, remains consistent
with the strategy of inflation convergence to around the target over the relevant
horizon. The Committee decided again to emphasize the six-quarter-ahead horizon for
its projections, and stresses that this decision is conditional on the temporary nature of
the taxes. Moreover, the Committee continues to consider that inflation projection for
2024 is also around the target. This assessment reflects the lower-than-normal visibility
of the forward -looking scenar io, which increases the uncertainty of the point
projections communicated by the Committee over longer horizons.
17. Copom anticipates that, if the alternative scenario of maintaining tax exemption on
fuels in 2023 materializes, it will again emphasize usual horizons that include the first
quarter of 2023. However, it assesses that there will be no relevant impacts on the
conduct of monetary policy since the primary effects of such measures are already
being disregarded.
18. Copom began by discussing the evolution of the broad array of data monitored, the
projections, inflation expectations, output gap, and the balance of risks. Copom's
inflation projections showed a slight increase over the relevant horizon due to both an
increase in the projection for the inflation of market prices in shorter terms and a
revision of the projection for the inflation of administered prices over longer terms.
Compared to the previous meeting, the median inflation expectations from the Focus
Survey rose slightly for 2023 and remained stable for 2024. However, regarding 2024,
the Committee noted with concern a rise in the average expectations. The uncertainty
about future fiscal dynamics, and its consequences on inflation dynamics, was
discussed, and the uncertain environment was deemed to require serenity in assessing
these risks. Services inflation showed some moderation but remains at high levels, and
the Committee believes that the disinflation process of this component will become
clearer ove r time. Finally, regarding the output gap, the Committee observed a
reduction in the degree of economic slack in the third quarter, due to data revisions and
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the release of domestic variables, but believes that the gap should widen over the
relevant horizon.
19. Copom chose to maintain the interest rate, reinforcing the need to evaluate, over
time, the cumulative impacts to be observed of the intense and timely monetary policy
cycle already undertaken. Therefore, the Committee members assessed that, given the
data released, projections, inflation expectations, the balance of risks, and the lags of
the effects of the monetary policy already in significantly contractionary territory, it was
appropriate to maintain the interest rate at the level of 13.75% p.a. The Committee
reinforced that it is necessary to remain vigilant, assessing if the strategy of maintaining
the Selic rate for a sufficiently long period will be enough to ensure the convergence of
inflation.
20. The Committee emphasizes that it will persist until the disinflationary process
consolidates and inflation expectations anchor around its targets. The Committee
emphasizes that it will not hesitate to resume the tightening cycle if the disinflationary
process does not proceed as expected.
D) Monetary policy decision
21. Considering the assessed scenarios, the balance of risks, and the broad array of
available information, the Copom decided to maintain the Selic rate at 13.75% p.a. The
Committee judges that this decision reflects the uncertainty around its scenari os for
prospective inflation, an even higher -than-usual variance in the balance of risks, and is
consistent with the strategy for inflation convergence to a level around its target
throughout the relevant horizon for monetary policy, which includes 2023 and 2024.
Without compromising its fundamental objective of ensuring price stability, this
decision also implies smoothing of economic fluctuations and fosters full employment.
22. The Committee will remain vigilant, assessing if the strategy of maintaining the Selic
rate for a sufficiently long period will be enough to ensure the convergence of inflation.
The Committee emphasizes that it will persist until the disinflationary proces s
consolidates and inflation expectations anchor around its targets. The Committee
reinforces that future monetary policy steps can be adjusted and will not hesitate to
resume the tightening cycle if the disinflationary process does not proceed as expected.
23. The following members of the Committee voted for this decision: Roberto de
Oliveira Campos Neto (Governor), Bruno Serra Fernandes, Carolina de Assis Barros,
Diogo Abry Guillen, Fernanda Magalhães Rumenos Guardado, Maurício Costa de Moura,
Paulo Sérgio Neves de Souza and Renato Dias de Brito Gomes.