Monetary authority decided to maintain the base interest at 13.75% per annum; the vote was unanimous in the Copom
THE BC (Central Bank) signaled that it may maintain the basic rate, the Selic, at a high level for “longer period than the baseline scenario”. The monetary authority maintained the base interest rate at 13.75% per annum this Wednesday (Feb.1, 2023).
The high level of the Selic serves to control inflation. The Copom (Monetary Policy Committee) – formed by the president and directors of the Central Bank – said that it will remain vigilant for the trajectory of the IPCA (National Index of Consumer Prices). He stated that he evaluates “if the strategy of maintaining the basic interest rate for a longer period than in the reference scenario will be able to ensure the convergence of inflation [para a meta]“.
“The Committee reinforces that it will persevere until it consolidates not only the disinflation process but also the anchoring of expectations around its targets, which have shown deterioration in longer terms since the last meeting”, said the statement. read the full of the text (86 KB).
The collegiate also declared that it will not hesitate to increase interest rates if the disinflation process does not go as expected.
The BC said that the global scenario continues with expectations of growth below potential. There is, according to the statement, high volatility in financial assets and a pressured inflationary environment. He indicated, however, that there had been a slowdown in rates in recent months.
THE Fed (Federal Reserve, the Central Bank of the United States) raised the interest rate by 0.25 percentage points this Wednesday (1st.Feb.2023). It increased to the range of 4.25% to 4.75% per annum, the highest level since September 2007. This was the 8th consecutive readjustment.
The Copom stated that the monetary policy of advanced countries requires greater care on the part of emerging countries. He pondered that recent data on global economic activity have been relatively “resilient” and the easing of the flow of people due to the covid-19 pandemic in China alleviates the possibility of new “disruptions in global supply chains”.
The BC said that Brazilian economic activity continues to corroborate the deceleration scenario expected by the Copom. He argues that the indices that measure prices in the country follow “above the range compatible with meeting the inflation target”.
On Monday (Jan.30.2023), the Focus Bulletin reported that the estimate for inflation was 5.7% for 2023 and 3.9% for 2024. Monetary policy has lagged effects and the decision on the Selic level has effect for the next 6 quarters (or 1 year and a half). The Copom projected that inflation will be 5.6% in 2023 and 3.4% in 2024.
In an alternative scenario, in which the Selic remains at 13.75% throughout the relevant horizon (1 year and a half), projections for inflation are 5.5% in 2023 and 3.1% in the 3rd quarter of 2024 and 2.8% in December 2024.
That is, if the BC does not change the Selic rate by the end of the year, inflation should end 2023 above the target ceiling of 5%.
RISKS FOR HIGH PRICES
The BC listed the following risks for inflation to rise in 2023 and mid-2024:
greater persistence of global inflationary pressures; (ii) the still high uncertainty about the future of the country’s fiscal framework and fiscal stimuli that imply sustaining aggregate demand, partially incorporated in inflation expectations and asset prices; and (iii) a narrower output gap than the one currently used by the Committee in its reference scenario, particularly in the labor market
On the other hand, he said that a fall in the prices of commoditiesa slowdown in the global economy and the maintenance of tax cuts may hold back inflation.
The Central Bank said that there is uncertainty in the conduct of the government’s fiscal policy and inflation is moving away from the target in longer horizons.
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