COPOM Watch: "Make me chaste, but not yet.”
The Minutes of the last Monetary Policy Committee (Copom) meeting, released today, carry even greater importance than usual, as they were expected to provide the motives behind the minority vote for a stronger reduction of the benchmark Selic rate, namely 0.50 pp, in opposition to the majority decision for a 0.25 pp cut.
However, as already evident from the statements of some directors to the press (during BCB’s blackout period, I note sadly), ultimately there was nothing deeper to explain such stance than the presumed need to preserve the forward guidance, i.e., the indication made in March about maintaining the pace of interest rate cuts in May, in case the scenario unfolded as it had been expected at that time.
As stated in the minutes, the minority's concern was whether:
"The prospective scenario diverged significantly from what was expected to the point of justifying the reputational cost of not following the guidance, which could lead to a reduction in the effectiveness of the Committee's formal communications."
For the majority of the Copom, however,
“The forward guidance indicated at the previous meeting was always conditional, and there was a change in the scenario compared to what was expected. Such members emphasized that far more important than the eventual reputational cost of not following a guidance, even if conditional, is the risk of losing credibility regarding the commitment to fighting inflation and anchoring expectations." (emphasis added)
At the end of the day, it boils down to the extent of the change in scenario. In this sense, the Minutes were remarkably eloquent.
As noted in the statement following last week's meeting, there are three dimensions to the Copom's scenario change, now analyzed in more detail.
Now read on...
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