Central Bank releases Copom minutes and indicates "parsimonious" interest rate reduction starting in August

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247 - The Central Bank released on Tuesday (27) the minutes of the latest meeting of the Monetary Policy Committee (Copom), held last week, indicating that in August, at the next meeting of the group, the benchmark interest rate, Selic, currently at 13.75%, may undergo a "parsimonious" reduction process. 

Copom highlighted in its analysis that there is greater pressure for price increases in the current period, and the inflationary process is fueled by these expectations. It was also emphasized that anchoring expectations is an essential element for price stability.

The Committee emphasized that despite benign factors contributing to the internal dynamics of current inflation in Brazil, the disinflationary process in the country is still in a stage that requires serenity and patience in conducting monetary policy. Inflation expectations remain unanchored from the targets set by the National Monetary Council (CMN), although there has been a slight decrease in the degree of unanchoring at the margin, the argument goes.

"In this debate, there was divergence within the Committee regarding the degree of signaling regarding the next steps. The prevailing assessment was that the continuation of the ongoing disinflationary process, with a consequent impact on expectations, may allow for the accumulation of the necessary confidence to begin a parsimonious inflection process at the next meeting. Another group showed more caution, emphasizing that the disinflationary dynamics still reflect the retreat of more volatile components and that uncertainty about the output gap raises doubts about the impact of the monetary tightening implemented so far. For this group, it is necessary to observe greater reanchoring of long-term expectations and accumulate more evidence of disinflation in components more sensitive to the cycle. However, the Committee members unanimously agreed that future steps of monetary policy will depend on the evolution of inflation dynamics, especially those components more sensitive to monetary policy and economic activity, inflation expectations, particularly longer-term ones, their inflation projections, the output gap, and the balance of risks," it says.

The Central Bank kept the Selic rate unchanged last week for the seventh consecutive time, although it adopted a more dovish tone regarding future measures, excluding the possibility of future increases in its statement. The financial market indicates that many traders are betting on the Central Bank initiating a cycle of monetary easing in August, while President Luiz Inácio Lula da Silva continues to pressure the monetary authority to reduce interest rates to stimulate growth.

The National Broad Consumer Price Index (IPCA-15), which is a preview of the official inflation rate in the country, showed a further slowdown with a variation of 0.04% in June, according to the Brazilian Institute of Geography and Statistics (IBGE) on Tuesday. In June 2022, the IPCA-15 had reached 0.69%. Over the last 12 months, the variation of IPCA-15 was 3.40%, which is lower than the 4.07% observed in the 12 months ending in April. The consensus among analysts for this reading was 3.39%.

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