Brazil’s Central Bank released this Tuesday the minutes of the latest meeting of its Monetary Policy Committee (Copom), which adopted a milder tone than the previous meeting, suggesting that rate hikes are a “less likely scenario.” The bank nonetheless reiterated that there will be no cuts in the near term and that the 13.75 percent rate will remain unchanged until inflation expectations are back on target, something unlikely to happen anytime soon per market projections.
The latest edition of the Central Bank’s weekly Focus bulletin, a survey of over 140 leading financial institutions, saw inflation forecasts rise slightly to 6.1 percent for this year and 4.2 percent in 2024. The inflation target is currently set at 3.25 percent, with a 1.5 percent tolerance range above or below.
Monthly inflation slowed to 0.71 percent in March, with annual inflation coming in at 4.65 percent. In April, the national statistics institute IBGE’s mid-month estimate for the consumer price index stood at 0.57 percent. Final inflation data for the month will be released on Friday.
Looking at the external market, the bank stressed that most monetary authorities are signaling a prolonged period of high interest rates to fight inflationary pressures, which also requires greater caution from emerging countries.
Domestically, the latest activity and credit indicators corroborate a scenario of gradual growth slowdown expected by the committee. On the other hand, the labor market has shown resilience, with a net increase in jobs and relative stability in the unemployment rate.
Once again, the Central Bank used the minutes to send a message to the Luiz Inácio Lula da Silva administration, saying that “the most recent inflation data corroborate the view of a slower disinflation process, in line with the view of an inflation driven by excess demand, particularly in the services sector” and that this requires “serenity and patience” in conducting the country’s monetary policy.
Technically, however, the main message is that the Central Bank is monitoring the government’s new fiscal framework — which needs approval in Congress before it can be implemented — to assess whether its actual impacts are reflected in the bank’s analysis model, which measures inflation expectations. The minutes stress that there is no “mechanical relationship” between the approval of the new fiscal framework and inflation convergence.
Finance Minister Fernando Haddad presented the new spending rules in March but the bill hasn’t been discussed in Congress yet. The Lower House postponed its first vote on the bill from May 10 to May 16.
This week, Lula announced the government’s first two picks for the Central Bank’s board of governors. Gabriel Galípolo, the current deputy finance minister who is opposed to overly restrictive interest rates, was chosen as the bank’s next monetary policy director. If his appointment is confirmed by the Senate, he is expected to push the government’s message for lower rates — but he would hold only one vote on a nine-seat body that has just unanimously kept the rates unchanged.
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