Headquarters of the Central Bank, in Brasília.| Photo: Marcello Casal Jr/Agência Brasil

The Monetary Policy Committee (Copom) of the Central Bank decided this Wednesday (1st) to maintain the basic interest rate (Selic) of the Brazilian economy at 13.75% per year. The index has been in effect since August. The result was already expected by the financial market. This is the committee’s first meeting during the new Lula (PT) government.

“The Committee understands that this decision reflects the uncertainty surrounding its scenarios and a balance of risks with even greater variance than usual for prospective inflation, and is compatible with the strategy of convergence of inflation towards the target over the course of of the relevant horizon, which includes the years 2023 and, to a greater extent, 2024”, says the note released after the Copom meeting.

“Without prejudice to its fundamental objective of ensuring price stability, this decision also implies smoothing fluctuations in the level of economic activity and fostering full employment”, stressed the committee.

The Copom pointed out that, in its scenarios for inflation, “risk factors remain in both directions”. Among the upside risks in the inflationary scenario, the group points to “greater persistence of global inflationary pressures”; “high uncertainty about the future of the country’s fiscal framework and fiscal stimuli”; and “a narrower output gap than the one currently used by the Committee in its reference scenario, particularly in the labor market”.

Among the downside risks, the committee cites “a further drop in international commodity prices in local currency; a sharper-than-projected slowdown in global economic activity; and maintaining tax cuts projected to be reversed in 2023”.