In Brazil, the Monetary Policy Committee of the Central Bank on March 22 has published in a statement, the decision to keep the interest rate at 13.75%, because the global environment has changed and there is uncertainty in the markets.
Thus, the Monetary Policy Committee (Copom) highlighted that The global environment has deteriorated due to uncertainty and volatility in the markets caused by episodes related to banks in the United States and Europe. On the other hand, recent data on global activity and inflation continue to be resilient, and the monetary policy adjustment process in the main economies continued to advance.
Likewise, the economic activity indicators seem to be in line with the slowdown expected by Copom. Consumer inflation and the different core inflation measures are above the range compatible with meeting the inflation target. Besides, inflation expectations for 2023 and 2024 have increased according to the Focus survey that has been taken into account by the committee.
Copom’s inflation projections in the reference scenario also increased, standing at 5.8% for 2023 and 3.6% for 2024. Inflation projections for administered prices are 10.2% for 2023 and 5.3% for 2024. Data from the International Monetary Fund predicted real growth for Brazil of 1.2%, as well as inflation of 5.7%, but at the time of making these projections they do not encompass current conditions in the global economy.
For this reason, the Committee decided to emphasize the six-quarter advantage horizon, which refers to the third quarter of 2024, in which the 12-month inflation projection is 3.8%. The Committee emphasizes that the risks to its scenarios remain in both directions.
Among the upward risks for the inflationary scenario and inflation expectations, which the Committee analyzes, it is worth highlighting further persistence of global inflationary pressures, uncertainty about the fiscal framework and its impacts on the expected path of public debt and a larger or more persistent decline in inflation expectations long-term.
Likewise, in the downside risks, an additional reduction in the prices of international products measured in local currency is considered, a greater deceleration than projected in world economic activity, particularly due to adverse conditions in the global financial system, and a slowdown in the granting of domestic credit greater than what would be compatible with the current stance of monetary policy.
Based on these data, The Copom decided to keep the Selic rate at 13.75% per year, since this decision is consistent with the inflation convergence strategy at a level around its objective throughout the relevant horizon for monetary policy. However, the statement indicates that “the Committee remains attentive and evaluates whether the strategy of maintaining the Selic rate for a long period will be enough to guarantee the convergence of inflation”. From the Committee they emphasize that they will persist until the disinflationary process is consolidated and inflation expectations anchor around their objectives.
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