BC directors disagree on next steps

Central Bank directors disagreed about the next steps for interest rate policy. At the last meeting of the Monetary Policy Committee (Copom) last week, a predominant group assessed that there is room for a possible reduction in the rate at the next meeting, in August. Another group, however, advocated caution.

“There was divergence in the Committee regarding the degree of signaling in relation to the next steps. The predominant assessment was that the continuation of the ongoing disinflationary process, with consequent impact on expectations, may allow accumulating the necessary confidence to start a process parsimonious inflection at the next meeting”, informs the Copom minutes, released this Tuesday morning (27).

The other group of directors, in turn, understands that the dynamics of the drop in inflation still reflects the retreat of more volatile components, such as food. It also considers that the uncertainty about the situation of the output gap raises doubts about the impact of the monetary tightening carried out so far.

These directors also consider that it is necessary to observe greater proximity of longer-term inflation expectations – in the coming years – to the targets and “accumulate more evidence of disinflation in the components that are more sensitive to the cycle”.

A point of consensus between the two groups was the fact that reductions in interest rates will depend on the evolution of inflation dynamics, especially on components that are more sensitive to interest rates; economic activity and longer-term expectations for inflation.