BCB COPOM Minutes - Meeting 250
Central bank: bcb | Type: minutes | Date: 2022-10-25

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Minutes of the Meeting of the
Monetary Policy Committee — Copom
October 25-26, 2022
250th
250th Meeting
COPOM
October 25-26
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T he 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. T his 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:
October 25-26, 2022
Place: BCB Headquarters’ meeting rooms on the 8 th floor – Brasilia – DF – Brazil
Starting and ending
times:
October 25: 10:15 AM – 12:12 PM; 2:15 PM – 5:21 PM
October 26: 10:04 AM – 11:05 AM; 2:35 PM – 6:35 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
Otávio Ribeiro Damaso
Paulo Sérgio Neves de Souza
Renato Dias de Brito Gomes
Department Heads in
charge of technical
presentations
(attending on 10/25 and
on the morning of
10/26):
Alan da Silva Andrade Mendes – Department of Foreign Reserves
André Minella – Research Department (also present on the afternoon of 10/26)
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 10/25 and
on the morning of
10/26):
Alexandre de Carvalho – Head of the Office of Economic Advisory
Cristiano de Oliveira Lopes Cozer – General Counsel
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
Eduardo Urbanski Bueno – Head of the Governor’s Office
Euler Pereira Gonçalves de Mello – Deputy Head of the Research Department
Gilneu Francisco Astolfi Vivan – Head of the Financial System Monitoring Department
Julio Cesar Costa Pinto – Head of the D eputy Governor for Monetar y Policy ’s Office
Leonardo Martins Nogueira – Executive Secretary
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
Renato Baldini Junior – Head of the Department of Statistics
Ricardo Franco Moura – Head of the Prudential and Foreign Exchange Regulation Department
250th Meeting
COPOM
October 25-26
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A) Update of economic outlook and Copom’s scenario1
1. The global environment remains adverse and volatile, with downward revisions on
prospective global growth. The tightening of the financial conditions in major
economies, the persistence of the war in Ukraine with its consequences on energy
supply to Europe , and the continuation of the Covid -19 policy in China reinforce a
prospect of a slowdown in global growth in the coming quarters.
2. The inflationary environment remains challenging. There is an incipient normalization
in supply chains and an accommodation in the prices of major commodities in the recent
period, which should lead to a moderat ion 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 may 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 the risk of abrupt
epricing movements in the markets. The Committee noted a stronger market
sensitivity to fiscal fundamentals, including in advanced economies. This greater
sensitivity, concomitant with tightening financial conditions, requires more attention
rom developing economies. The Committee continues to monitor the risks related to
the global slowdown and the increase in risk aversion in a highly pressured inflationary
environment.
4. Turning to the Brazilian economy, the set of indicators released since the previous
Copom meeting continues to signal growth, albeit at a more moderate rate. The labor
market continues to recover, but at a slower pace than in previous months.
5. Despite the recent reduction, driven by items which are more volatile and affected
by tax measures, consumer inflation remains high. The recent releases have been
strongly influenced by the reduction in administered prices, due to both the decrease
in taxes and, to a lesser extent, the drop in international fuel prices. In addition, 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. However,
the inflation of the components more sensitive to the economic cycle and the monetary
icy, which present greater inflationary inertia, remain above the range
compatible with meeting the inflation target. Inflation expectations for 2022, 2023,
and 2024 collected by the Focus survey are around 5.6%, 4.9%, 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 5.8% for 2022, 4.8% for 2023, and 2.9% for 2024. Inflation projections for
administered prices are -3.9% for 2022, 9.4% for 2 023, and 3.8% 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 3.2%. The Committee
Unless explicitly stated otherwise, this update takes into account c hanges that occurred since the
September Copom meeting (24 9
meeting ).
V alue obtai ned according to the usual procedure of roundi ng the average USD/BRL exchange rate observed
on the five business days ending on the last day of the week befo re the Copom me eti ng.
250th Meeting
COPOM
October 25-26
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judges that the uncertainty in its assumptions and projections is higher than usual.
7. The Committee still considers that the commitment and determination of central
banks to reduce inflationary pressures and anchor expectations raise the risk of a more
pronounced global slowdown. There has been an adjustment in the extent and speed
of the monetary policy tightening cycle in some advanced countries, which has led to a
further tightening of financial conditions.
8. The Committee noted a stronger market sensitivity to developments affecting the
fiscal fundamentals, including in advanced economies. The combination of higher
interest rates and sovereign debts at historically high levels, raises q uestions a bo ut the
sustainability of public debt in several countries. Besides, the lower liquidity of the
sovereign securities markets increases risk perception and demand monitoring.
9. Data on economic activity, which contribute to the assessment of the degree of slack,
point to a more moderate pace of growth recently. On the one hand, the momentum
of the reopening of the economy in the services sector and the fiscal stimuli are still
driving consumption growth, although these impulses should slow down. On the other
hand, the impact of monetary policy and its lags point to a reduction in the pace of
economic activity, which tends to worsen in the coming quarters.
10. The Committee discussed the already noticeable im pac ts of monetary polic y on
credit and economic activity data. One can notice an impact in recent data regarding
both the composition of new household credit operations and the moderate increase
in the delinquency rate, partly related to the behavior of the real disposable income,
which suggests some reductio n. The Committee observed that an additional challenge
for the proper assessment of the dynamics of activity at the margin is in the seasonal
adjustment of the series, especially of the indicators with a shorter sample period, due
to the pandemic period. Exercises show a high sensitivity of the signal and the
magnitude of the seasonally adjusted results to small changes in the samples and
methods used.
11. In the domestic scenario, Copom believes that the permanent increase in spending
and the uncertainty about its trajectory from next year on may increase the country's
risk premia and inflation expectations as they put pressure on aggregate demand and
worsen the fiscal path expectations. The Committee reiterates that there are several
channels by which fiscal policy may affect inflation, including its effect on activity, asset
prices, degree of uncertainty in the economy, and inflation expectations.
12. 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; (ii) the
uncertainty about the country's future fiscal framework and addi tional fiscal stimuli
that support aggregate demand, partially incorporated in inflation expectations and
asset prices; and (iii) an output gap tighter than the currently adopted by the
Committee in its reference scenario, especially in the labor market. A mong the
downside risks, it should be noted (i) an additional reduction in the prices of
international commodities measured in l ocal c urrency; (ii) a greater than projected
deceleration of global economic activity; and (iii) the continuity of tax cuts assumed to
be reversed in 2023. The Committee assesses that the still uncertain and v olatile
current scenario requires serenity when evaluating risks.
C) Discussion about the conduct of monetary policy
13. Copom discussed the conduct of monetary policy, considering the set of projections
evaluated, as well as the balance of risks for inflation.
14. The 12-month inflation projection for the second quarter of 2024, in the scenario
using the interest rate trajectory extracted from the Focus survey, remains consistent
250th Meeting
COPOM
October 25-26
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with the strategy of inflation convergence to around the target over the relevant
horizon. The Committee decided again to emphasize the six-q uarter-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 v isibility
of the forward -looking scenario, which increases the uncertainty of the point
projections communicated by the Committee over longer horizons.
15. 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 o n the
conduct of monetary policy since the primary effects of such measures are already
being disregarded.
16. Copom began by discussing the evolution of the broad array of data monitored, the
projections, inflation expectations, and the balance of risks. Inf lation projections
showed a slight increase at longer horizons, reflecting upward revisions for inflation of
market prices in the short term and a small increase in the projection for administered
prices. The Committee assesses that the projections remain at values consistent with
the strategy of reaching a level around the target over the relevant horizon. Inflation
expectations from the Focus survey showed a more pronounced drop at shorter
horizons but remains relatively stable for longer ones. Risks rema in high, requiring
continuous monitoring and serenity in their assessment. Regarding the degree of slack
in the domestic economy, the Committee continues to monitor different metrics and
strategies for the assessment of the output gap, as well as for current and prospective
activity, and considers that there has been some decrease in the estimated slack since
its latest update. Copom reinforces that its projection incorporates an increase in slack
throughout the monetary policy horizon, as a result of the monetary adjustment
undertaken in recent quarters. Finally, the Committee is following with special
attention the evolution of services inflation, which depends on both inflationary inertia
and the output gap, and whose trajectory will become clearer over time.
17. Copom chose to maintain the interest rate, reinforcing the need to evaluate, over
time, the accumulated 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 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.
18. The Committee emphasizes that it will persist until the disinf lationary process
onsolidates 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
19. 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 scenarios 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 targ et
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.
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COPOM
October 25-26
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20. 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.
21. 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,
Otávio Ribeiro Damaso, Paulo Sérgio Neves de Souza, and Renato Dias de Brito Gomes.