The Central Bank maintains Selic at 13.75% per year and says to remain vigilant on the disinflation process

The Central Bank’s Monetary Policy Committee (Copom) decided on Wednesday (26) to maintain the Selic rate at 13.75%. For the second consecutive meeting, the authority chose not to touch interest rates. The decision was unanimous, unlike the Sept. 21 meeting, where the Selic’s cycle of 12 consecutive increases, which began last March, was halted.

Selic rate: What it is, what it is for and how it influences your investments

The BC believes that the current situation is still uncertain, volatile and “requires serenity in risk assessment”.

Regarding the external environment, the Copom highlighted negative criticism for global growth and increased volatility of financial assets. He also spoke of the inflationary environment under pressure, with monetary policies in developed countries moving towards restrictive interest rates and tighter financial conditions.

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“The Committee considers that these two developments inspire greater attention for emerging countries,” reads the statement accompanying the decision.

Regarding Brazilian economic activity, the BC acknowledged that the indicators published since the Copom meeting in September signaled a more moderate pace of growth. However, he clarified that the fall in prices remains concentrated on the volatile elements, affected by the fiscal measures and that consumer inflation remains high.

“The Committee understands that this decision reflects the uncertainty surrounding its scenarios and a balance of risks with an even larger than usual variance for forward-looking inflation, and is consistent with the inflation convergence strategy around the target over the long term of the relevant horizon. , which includes the years 2023 and 2024,” the statement accompanying the decision read.

There was virtually consensus among economists that the rate would also be maintained at this October meeting.

“The Committee will remain vigilant, assessing whether the strategy of maintaining the base interest rate for a sufficiently long period will be able to ensure the convergence of inflation”, specifies the text of the Central Bank.

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The statement also indicates that future monetary policy measures may be adjusted. The Copom indicates that it will not hesitate to resume the adjustment cycle if the disinflation process does not go as planned.

In a survey conducted by XP, 71% of managers surveyed believe that the first cut should take place in the second quarter of 2023, while 29% of managers believe that the cutting cycle should only start in the third quarter of next year. .

Read the full Copom statement:

At its 250th meeting, the Monetary Policy Committee (Copom) decided to maintain the Selic rate at 13.75% pa

The updated Copom scenario can be described with the following observations:

The external environment remains unfavorable and volatile, with negative global growth revisions and heightened volatility in financial assets. The inflationary environment remains under pressure, while the process of monetary policy normalization in advanced countries continues towards restrictive rates, tightening financial conditions. The Committee also noted the greater sensitivity of markets to fiscal fundamentals, including in advanced countries. The Committee considers that these two developments warrant greater attention in emerging countries;

With regard to Brazilian economic activity, all the indicators published since the last Copom meeting point to a more moderate growth rate;

Despite the recent decline concentrated in volatile elements and affected by fiscal measures, consumer inflation remains high;

The various core inflation measures are above the range compatible with achieving the inflation target;

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Inflation expectations for 2022, 2023 and 2024 determined by the Focus survey are around 5.6%, 4.9% and 3.5% respectively; and

In the baseline scenario, the interest rate trajectory is taken from the Focus survey and the exchange rate starts at 5.25 USD/BRL*, moving at purchasing power parity (PPP). The price of oil roughly follows the futures curve for the next six months and begins to rise 2% per year thereafter. In addition, we retain the assumption of a “green” tariff flag in December 2022 and “yellow” in December 2023 and 2024. In this scenario, the Copom 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 2023 and 3.8% for 2024.

The Committee has again chosen to focus on the horizon of the next six quarters, which reflects the relevant horizon, smooths out the direct effects of the tax changes, but incorporates their secondary impacts. At this horizon, referring to the second quarter of 2024, the cumulative inflation projection over twelve months stands at 3.2%. The Committee believes that the uncertainty surrounding its assumptions and projections is currently greater than usual.

The Committee stresses that, in its inflation scenarios, the risk factors remain in both directions. Upside risks to the inflationary scenario and inflation expectations include: (i) greater persistence of global inflationary pressures; (ii) uncertainty about the future of the country’s fiscal framework and additional fiscal stimuli that imply the maintenance of aggregate demand, partially priced into inflation expectations and asset prices; and (iii) a lower output gap than that currently adopted by the Committee in its reference scenario, particularly in the labor market. Downside risks include: (i) a further decline in international commodity prices in local currency; (ii) a more accentuated deceleration in global economic activity than expected; and (iii) maintaining the tax reductions, the cancellation of which is scheduled for 2023. The Committee believes that the situation, which is still particularly uncertain and volatile, requires serenity in the assessment of risks.

Considering the scenarios assessed, the balance of risks and the wide range of information available, the Copom has decided to maintain the base interest rate at 13.75% pa The Committee understands that this decision reflects the uncertainty surrounding its scenarios and a balance of risks even greater than usual variance for forward-looking inflation, and is consistent with the inflation convergence strategy around the target at the relevant horizon, which includes the years 2023 and 2024 Without prejudice to its fundamental objective of ensuring price stability, this decision also implies a smoothing of fluctuations in the level of economic activity and the promotion of full employment.

The Committee will remain vigilant, assessing whether the strategy of maintaining the base interest rate for a sufficiently long period will ensure the convergence of inflation. The Committee reaffirms that it will persevere until not only the process of disinflation is consolidated, but also the anchoring of expectations around its objectives. The Committee emphasizes that future monetary policy measures may be adjusted and will not hesitate to resume the adjustment cycle if the disinflation process does not go as planned.

The following members of the Committee voted for this decision: Roberto de Oliveira Campos Neto (president), 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.

*Value obtained by the usual rounding procedure of the average quotation of the USD/BRL exchange rate recorded over the five working days ending on the last day of the week preceding the Copom meeting.

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