The Decision of the COPOM

BRAZIL ECONOMICS - Report 08 May 2023 by Affonso Pastore, Cristina Pinotti, Paula Magalhães and Diego Brandao

At the last COPOM meeting, the SELIC rate was kept at 13.75%. With a serene tone and clear technical support, the Central Bank’s communiqué stated clearly there was no outlook for the foreseeable future to start an easing cycle. Besides the conflict between restrictive monetary policy and expansionary fiscal policy, not attenuated by the proposed fiscal framework, inflation expectations remain unanchored over the short and long terms.

The unanchoring over the long horizon is similar to the pattern that occurred when Tombini yielded to pressures from President Rousseff and lowered the interest rate. After December 2024, Campos Neto will no longer be president of the Central Bank, increasing the risk of a monetary policy more aligned with the government’s desire to reduce the basic interest rate, even at the cost of higher inflation.

Without a solution of the fiscal-monetary conflict, and with the Central Bank under attack, the unanchoring of expectations will continue retarding the start of the easing cycle.

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