BC repeats warnings about inflation and indicates high interest rates for longer

The Central Bank’s Monetary Policy Committee (Copom) assesses that the presentation of the fiscal framework proposal reduced uncertainties in relation to the government’s fiscal policy. On the other hand, the collegiate says it sees “with concern” the movement of inflation expectations, which “continue to be unanchored from the targets”, and promises to “persevere” until the disinflation process is consolidated and projections are anchored.

The comments are contained in the minutes of the last Copom meeting, which ended last Wednesday (3), when the committee decided once again to maintain the basic interest rate (Selic) at 13.75% per year, a level at which it has been since August 2022.

Amidst criticism from President Luiz Inácio Lula da Silva (PT) and ministers regarding the Central Bank’s monetary policy, the minutes released this Tuesday (9) do not give rise to speculation about a drop in interest rates in the short term. On the contrary, it reinforces previous warnings made by the Copom and its members, such as the president of the Central Bank, Roberto Campos Neto, especially regarding the behavior of expectations for inflation, which remain above the targets pursued by the monetary authority.

The text of the minutes says that consumer inflation remains high and that “the components most sensitive to the economic cycle and monetary policy, which show greater inflationary inertia, remain above the range compatible with meeting the target”.

Although it states that the presentation of the new fiscal regime has reduced the uncertainty associated with “extreme scenarios of public debt growth”, the Copom says that it will monitor the process and implementation of the framework, emphasizing that “there is no mechanical relationship between the convergence of inflation and the approval of the fiscal framework”.

In the final section of the document, the committee says that it “remains vigilant, assessing whether the strategy of maintaining the basic interest rate for a prolonged period will be able to ensure the convergence of inflation”.

The collegiate warns that “it will persevere until not only the disinflation process is consolidated, but also the anchoring of expectations around its targets” and that, although it is less likely, “it will not hesitate to resume the adjustment cycle [isto é, alta de juros] if the disinflation process does not go as expected”.