BCB COPOM Minutes - Meeting 244
Central bank: bcb | Type: minutes | Date: 2022-02-01

1 bcb.gov.br
Minutes of the Meeting of the
Monetary Policy Committee — Copom
February 1-2, 2022
244th
244th Meeting
COPOM
February 1-2
2 bcb.gov.br
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 represents
Copom's best effort to provide an English version of its policy meeting minutes. In case of
inconsistency, the Portuguese version prevails.
Date:
February 1-2, 2022
Place: BCB Headquarters’ meeting rooms on the 8th floor – Brasilia – DF – Brazil
Starting and ending
times:
February 1: 10:18 AM – 1:05 PM; 2:17 PM – 6:37 PM
February 2: 2:34 PM – 6:40 PM
In attendance:
Copom Members Roberto Oliveira Campos Neto – Governor
Bruno Serra Fernandes
Carolina de Assis Barros
Fernanda Magalhães Rumenos Guardado
João Manoel Pinho de Mello
Maurício Costa de Moura
Otávio Ribeiro Damaso
Paulo Sérgio Neves de Souza
Department Heads in
charge of technical
presentations
(February 1):
Alan da Silva Andrade Mendes – Department of Foreign Reserves
André Minella – Research Department (also present on February 2)
André de Oliveira Amante – Open Market Operations Department
Olavo Lins Romano Pereira – Deputy Head of the Department of International Affairs
Ricardo Sabbadini – Department of Economics
Rogério Antônio Lucca – Department of Banking Operations and Payments System
Other participants
(February 1):
Arnildo da Silva Correa – Head of the Office of Economic Advisor
Cristiano de Oliveira Lopes Cozer – General Counsel
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
Jean Toledo de Freitas – Chief of Division at the Department of International Affairs
Julio Cesar Costa Pinto – Head of the Deputy Governor for Monetary Policy’s Office
Leonardo Martins Nogueira – Executive Secretary
Pedro Henrique da Silva Castro – Deputy Head of the Department of Economics
Rafael Mendonça Travassos Andrezo – Deputy Head of the Governor’s Office
244th Meeting
COPOM
February 1-2
3 bcb.gov.br
A) Update of economic outlook and Copom’s reference scenario1
1. Regarding the global outlook, the environment remains less favorable. Mo re
persistent inflation raises the chances of faster monetary tightening in the US, turning
financial conditions more challenging for emerging economies. In addition, the recent
Covid-19 wave adds uncertainty about the pace of activity, and at the same tim e could
delay the normalization of global supply chains. Since the previous meeting, most
commodities reversed the decline observed at the end of the year and, in some cases,
reached recent records, reinforcing the global environment of pressured prices.
2. Turning to the Brazilian economic activity, trade and services indicators showed a
slightly better -than-expected evolution in November, while industry recovered in
December. Labor market indicators showed consistent job recovery in 2021Q4.
3. For 2022, if, on the one hand, the rise in risk premia and the more intense tightening
of financial conditions act stifling the economic activity, on the other hand Copom still
considers that economic growth tends to benefit from the performance of agriculture
and live stock and from the remaining effects of the normalization process of the
economy, particularly in the services sector and in the labor market. However,
confidence indexes released since the previous meeting continue to deteriorate, and
weather developments have affected the projections for important agricultural crops.
4. Consumer inflation remains high, with increases spread among several components,
and continues to be more persistent than anticipated. The increase of industrial prices
has not slowed down and should persist in the short term, while services inflation
accelerated, still reflecting the gradual normalization in the sector’s activity. Recent
readings were higher than expected and the surprise came in both the more volatile
components and particularly on the items associated with core inflation.
5. The various measures of underlying inflation are above the range compatible with
meeting the inflation target. Inflation expectations for 2022 and 2023 collected by the
Focus survey are around 5.4% and 3.5%, respectively.
6. The Copom's inflation projections in i ts reference2 scenario, with interest rate path
extracted from the Focus survey and exchange rate starting at USD/BRL 5.45 3 and
evolving according to the purchasing power parity (PPP), stand around 5.4% for 2022
and 3.2% for 2023. This scenario assumes a path for the Selic rate that rises to 12% p.a.
in the first half of 2022, ends the year at 11.75% p.a., and drops to 8.00% p.a. during
2023. In this scenario, inflation projections for administered prices are 6.6% for 2022
and 5.4% for 2023. The energy flag is assumed to be “red level 1” in December of 2022
and 2023.
7. Regarding administered prices, the revision was mainly due to the strong increase in
oil prices since the previous meeting of the Committee, as well as administered items
whose variations will be repeated throughout the year. These pressures were only
partially offset by the change in the hypothesis of the energy flag for the end of 2022,
which reflected the improved rainfall scenario.
B) Risks around the reference inflation scenario
8. The Copom’s reference scenario for inflation encompasses risk factors in both
directions.
1 Unless explicitly stated otherwise, this update takes into account changes that occurred since the December
Copom meeting (243rd meeting).
2 Previously called the baseline scenario, with no changes in methodology.
3 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.
244th Meeting
COPOM
February 1-2
4 bcb.gov.br
9. On the one hand, a possible reversion, even if partial, of the increase in the price of
international commodities measured in local currency would produce a lower-than-
projected inflation in the reference scenario.
10. On the other hand, fiscal policies that imply additional impulses to aggregate
demand or deteriorate the future fiscal path may have a negative impact on prices of
important financial assets as well as pressure the country’s risk premia.
11. In spite of the more favorable public accounts data, the Committee assesses that
the uncertainties regarding the fiscal framework maintain elevated the risk of
deanchoring inflation expectations and, therefore, the upward asymmetry in the
balance of risks. This implies a h igher probability of inflation paths above the one
projected under the reference scenario.
C) Discussion about the conduct of monetary policy
12. U ncertainties regarding the future of the current fiscal framework result in
increased risk premia and raises the r isk of deanchoring inflation expectations. This
implies assigning greater probability to alternative scenarios that consider higher
neutral interest rates. The Committee reiterates that the process of reforms and
necessary adjustments in the Brazilian economy is essential for a sustainable economic
growth. Weaknesses in the structural reform effort and permanent changes to the
fiscal consolidation process could result in an increase in the structural interest rate.
Additionally, the Committee notes that even fiscal policies that have a downward effect
on inflation in the short term can cause a deterioration in the country's risk premia,
increase inflation expectations, and consequently have an upward effect on
prospective inflation.
13. Next, Copom discussed the implementation of monetary policy, considering not
only the reference scenario, but also the balance of risks for inflation. According to the
reference scenario, which uses the interest rate path extracted from the Focus survey
and the exchange rate evolving according to the purchasing power parity, the inflation
projections are above the upper limit of the tolerance band of the target for 2022, and
around the target for 2023.
14. As for the balance of risks, the Committee ponder ed that the risk of deanchoring
longer-term expectations, derived from developments in the fiscal scenario, sustains an
upward bias for the projections of its reference scenario. Hence, considering this bias
due to asymmetric risks, Copom evaluated that its projections are above the target for
both 2022 and 2023. Therefore, Copom once more concluded that the monetary
tightening process should be more restrictive than that used in the reference scenario
throughout the relevant horizon.
15. Next, Copom assessed the appropriate pace of interest rate hikes. For such, it
analyzed its inflation projections using simulations with monetary policy paths with
different terminal rates, adjustment paces, and duration of monetary tightening. It is
worth noting that the scenarios considered, consistent with the convergence of
inflation to its targets, assumed a higher interest rate path than that used in the
reference scenario.
16. Based on these results, Copom members discussed the most appropriate strategy .
e Committee concluded that a nother adjustment of 1.50 percentage points,
followed by additional adjustments at a slower pace in the next meetings, is the most
appropriate strategy to achieve sufficient monetary tightening and ensure inflation
convergence over the relevant horizon, as well as the anchoring of long -term inflation
expectations.
17. Finally, the particularly high uncertainty surrounding important asset and
commodity prices, as well as the stage of the tightening cycle, led the Committee
to judge more appropriate, at this moment, not to signal the size of its future steps.
244th Meeting
COPOM
February 1-2
5 bcb.gov.br
D) Monetary policy decision
18. Taking into account the reference scenario, the balance of risks, and the broad array
of available information, the Copom unanimously decided to increase the Selic rate by
1.50 p.p. to 10.75% p.a. The Committee judges that this decision reflects its reference
scenario for pr ospective inflation, a higher -than-usual variance in the balance of risks
and is consistent with the convergence of inflation to its target throughout the relevant
horizon for monetary policy, which includes 2022 and, to a larger degree, 2023.
Without compromising its fundamental objective of ensuring price stability, this
decision also implies smoothing of economic fluctuations and fosters full employment.
19. The Committee considers that, given the increase in its inflation projections and in
the risk of deanchoring long-term expectations, it is appropriate to advance the process
of monetary tightening significantly into the restrictive territory. The Committee
emphasizes that it will persist in its strategy until the disinflation process and the
expectation anchoring around its targets consolidate.
20. For its next steps, the Committee foresees as adequate, at this moment, a reduction
in the pace of adjustment of the interest rate. This indication reflects the stage of the
tightening cycle as its cum ulative effects will manifest themselves over the relevant
horizon. The Copom emphasizes that its future policy steps could be adjusted to ensure
the convergence of inflation towards its targets and will depend on the evolution of
economic activity, on the balance of risks, and on inflation expectations and projections
for the relevant horizon for monetary policy.
21. The following members of the Committee voted for this decision: Roberto Oliveira
Campos Neto (Governor), Bruno Serra Fernandes, Carolina de Assi s Barros, Fernanda
Magalhães Rumenos Guardado, João Manoel Pinho de Mello, Maurício Costa de Moura,
Otávio Ribeiro Damaso, and Paulo Sérgio Neves de Souza.