The committee (Copom) of the Central Bank (BC) unanimously agreed that the more uncertain environment both domestically and internationally demands a more contractionary monetary policy, meaning a higher interest rate level to contain inflation. The committee also reiterated its “firm commitment” to converge inflation towards the 3.0% target.
This information is contained in the minutes explaining Copom’s decision last week to slow down the pace of the Selic rate cut – which dropped by 0.25 percentage points, from 10.75% to 10.50% per year.
Meanwhile, Andrea Damico, chief economist and founder of Buysidebrazil consultancy, believes that Copom is likely to unanimously opt for a 0.25 percentage point cut in June, bringing the Selic rate to 10.25%. However, this would be the last cut of the cycle, which began in August last year when interest rates were at 13.75%. She sees the minutes explicitly showing the committee’s attempt to demonstrate that there is no tolerance for inflation.
The dissenters moved towards a more technical justification and agreed with the more contractionary monetary policy and the removal of future signaling. The impression is that they are likely to vote for a 0.25pp reduction at the next meeting. There should be a consensus for a 0.25pp cut.
According to the economist, the minutes were quite harsh regarding assessments of the external scenario, economic activity, and the message to fiscal policy. The Copom noted that there has been a worsening in the perception of the state of public accounts by economic agents following the change in the fiscal target for 2025 (from a surplus of 0.5% of GDP to zero).
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