The Firm Tone of the Minutes and the Next Steps of the COPOM

BRAZIL ECONOMICS - Report 25 Sep 2024 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

The COPOM minutes provided a harsh diagnosis of the inflationary environment, and there was no indication regarding the pace and magnitude of interest rate adjustments, which will depend on the evolution of the data. The Committee's description of the current scenario, characterized by resilience in activity; pressures in the labor market; a positive output gap; rising inflation projections; and unanchored expectations, already calls for a greater pace of Selic increases.

Our view, however, is that the Central Bank may choose a slower convergence path of inflation towards the target, maintaining the pace of monetary tightening in upcoming meetings, despite the firm tone of the minutes. Strengthening the Central Bank's credibility depends not only on a bolder rhetoric from the COPOM but also on aligning its communication with monetary policy decisions.

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