At its last meeting, the Copom (Monetary Policy Committee) debated alternative inflation trajectories given the deterioration of the scenario. After the analysis, the panel assessed that worsening inflation would require “abrupt changes” in direction and of great magnitude in the Selic.
“The Committee debated alternative trajectories, not present in any of the expectations and responses, from Focus or QPC (Pre-Copom Questionnaire), nor reflected in the pricing of monetary policy by market agents, with convergence of inflation to the target in the current relevant horizon, requiring abrupt changes in direction and of great magnitude in the Selic, followed by several quarters with inflation below the target”, says the statement.
In , the Copom reported that it judged the Selic trajectories to be less discrepant to those present in Focus, QPC and monetary policy pricing as the most appropriate as they avoid inducing excessive volatility in the prices of financial assets.
“At first, it was highlighted that the scenario had deteriorated since the last decision, both in terms of the most recent readings of headline inflation and its underlying measures, and expectations for the years 2026, 2027 and 2028. It was highlighted that the latest IPCA reading already places the index above the upper limit established for the target”, says the minutes.
Despite the , the Copom minutes highlighted that it decided to reduce the Selic to 14.25% per year with an eye on “the best monetary policy practices”. In the statement, the collegiate cited oil shocks and the effects of El Niño on the economy.
“The Committee discussed that this set of results should be considered in light of the best monetary policy practices, recommending not to react fully to price variations resulting from supply shocks, which at the current time include relevant uncertainties”, it says.
Given the scenario of unanchored expectations, the Central Bank signaled the need for .
“The Committee reaffirms serenity and caution in the conduct of monetary policy, so that future steps in the basic interest rate calibration process can incorporate new information that increases clarity about the depth and extent of conflicts in the Middle East, as well as their direct and indirect effects on the price level over time”, says the statement.
