Copom reduces the Selic rate to 10.75% p.a.
The global environment remains volatile, with debates about the beginning of the easing cycle in major economies and the speed of sustained disinflation in many countries. The central banks of major economies remain committed to bringing inflation back to its targets in a context characterized by labor market pressures. The Committee judges that the environment continues to require caution from emerging market economies.Regarding the domestic scenario, the set of indicators on economic activity remains consistent with the scenario of deceleration expected by Copom. Headline consumer inflation remains in a path of disinflation, 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 3.8% and 3.5%, respectively.Copom's inflation projections in the reference scenario* stand at 3.5% for 2024, and 3.2% for 2025. Inflation projections for administered prices are 4.4% for 2024, and 3.9% for 2025. 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; and (ii) a stronger-than-expected resilience of services inflation due to a tighter output gap. 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 synchronized monetary policy tightening. The Committee judges that the domestic and international environments are more uncertain, requiring caution on the conduct of monetary policy.Given the importance of the execution of the fiscal targets already established for the anchoring of inflation expectations, and hence for the conduct of monetary policy, the Committee reaffirms the importance of firmly pursuing those targets.Considering the evolution of the disinflationary process, the assessed scenarios, the balance of risks, and the broad array of available information, Copom decided to reduce the Selic rate by 0.50 percentage point, to 10.75% 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, which includes 2024 and, to a larger degree, 2025. Without compromising its fundamental objective of ensuring price stability, this decision also implies smoothing economic fluctuations and fostering full employment.The current context, characterized by a stage in which the disinflationary process tends to be slower, with only partial reanchoring of inflation expectations and a challenging global outlook, requires serenity and moderation in the conduct of monetary policy. The Committee reinforces the need to persist on a contractionary monetary policy until the disinflationary process consolidates and inflation expectations anchor around its targets.The committee judges that the baseline scenario has not changed substantially. Due to heightened uncertainty and the need for more flexibility in the conduct of monetary policy, the Committee members unanimously decided to communicate that, if the scenario evolves as expected, they anticipate a reduction of the same magnitude in the next meeting. The Committee judges that this monetary policy stance is appropriate to keep the necessary contractionary monetary policy for the disinflationary process. The Committee emphasizes that the total magnitude of the easing cycle throughout time will depend on the inflation dynamics, especially the components that are more sensitive to monetary policy and economic activity, on inflation expectations, in particular the longer-term ones, on its inflation projections, on the output gap, and on the balance of risks.The following members of the Committee voted for a reduction of 0.50 percentage point: 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. * In the reference scenario, the interest rate path is extracted from the Focus survey, and the exchange rate starts at USD/BRL 4.95 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 2024 and 2025. The value for the exchange rate was obtained according to the procedure of rounding the average USD/BRL exchange rate observed on the ten business days ending on the last day of the week before the Copom meeting, as it started being adopted in the 258th meeting. Note: This press release represents the Copom's best effort to provide an English version
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The global environment remains volatile, with debates about the beginning of the easing cycle in major economies and the speed of sustained disinflation in many countries. The central banks of major economies remain committed to bringing inflation back to its targets in a context characterized by labor market pressures. The Committee judges that the environment continues to require caution from emerging market economies.
Regarding the domestic scenario, the set of indicators on economic activity remains consistent with the scenario of deceleration expected by Copom. Headline consumer inflation remains in a path of disinflation, 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 3.8% and 3.5%, respectively.
Copom's inflation projections in the reference scenario* stand at 3.5% for 2024, and 3.2% for 2025. Inflation projections for administered prices are 4.4% for 2024, and 3.9% for 2025.
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; and (ii) a stronger-than-expected resilience of services inflation due to a tighter output gap. 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 synchronized monetary policy tightening. The Committee judges that the domestic and international environments are more uncertain, requiring caution on the conduct of monetary policy.
Given the importance of the execution of the fiscal targets already established for the anchoring of inflation expectations, and hence for the conduct of monetary policy, the Committee reaffirms the importance of firmly pursuing those targets.
Considering the evolution of the disinflationary process, the assessed scenarios, the balance of risks, and the broad array of available information, Copom decided to reduce the Selic rate by 0.50 percentage point, to 10.75% 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, which includes 2024 and, to a larger degree, 2025. Without compromising its fundamental objective of ensuring price stability, this decision also implies smoothing economic fluctuations and fostering full employment.
The current context, characterized by a stage in which the disinflationary process tends to be slower, with only partial reanchoring of inflation expectations and a challenging global outlook, requires serenity and moderation in the conduct of monetary policy. The Committee reinforces the need to persist on a contractionary monetary policy until the disinflationary process consolidates and inflation expectations anchor around its targets.
The committee judges that the baseline scenario has not changed substantially. Due to heightened uncertainty and the need for more flexibility in the conduct of monetary policy, the Committee members unanimously decided to communicate that, if the scenario evolves as expected, they anticipate a reduction of the same magnitude in the next meeting. The Committee judges that this monetary policy stance is appropriate to keep the necessary contractionary monetary policy for the disinflationary process.
The Committee emphasizes that the total magnitude of the easing cycle throughout time will depend on the inflation dynamics, especially the components that are more sensitive to monetary policy and economic activity, on inflation expectations, in particular the longer-term ones, on its inflation projections, on the output gap, and on the balance of risks.
The following members of the Committee voted for a reduction of 0.50 percentage point: 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.
* In the reference scenario, the interest rate path is extracted from the Focus survey, and the exchange rate starts at USD/BRL 4.95 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 2024 and 2025. The value for the exchange rate was obtained according to the procedure of rounding the average USD/BRL exchange rate observed on the ten business days ending on the last day of the week before the Copom meeting, as it started being adopted in the 258th meeting.
Note: This press release represents the Copom's best effort to provide an English version of its policy statement. In case of any inconsistency, the original version in Portuguese prevails.
