The COPOM’s Decision

BRAZIL ECONOMICS - Report 30 Oct 2014 by Affonso Pastore, Cristina Pinotti and Marcelo Gazzano

In the face of inflation hovering near the top of the target interval and projections for 2015 in the same neighborhood (around 6.4%, Graph 1), there were no doubts that the Central Bank would raise the SELIC rate. The surprise was therefore not the increase, but instead the fact it came just after the election. In its communiqué, the Central Bank referred to the “change in the balance of risks” derived largely from adjustments of “relative prices”. In fact, since the last COPOM meeting, the real has depreciated by nearly 10%, which has raised the probability of inflation exceeding the top of the target interval. In these circumstances, any monetary authority committed to guiding inflation to the target would have boosted the interest rate. However, without responses to some crucial questions, it’s hard to predict the magnitude of the total tightening cycle.

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