Interest rate should continue to rise, says Copom minutes
The basic interest rate, the Selic, should rise again at the next meeting of the Monetary Policy Committee (Copom) of the Central Bank (BC), in February 2022. The forecast is in the minutes of the last committee meeting, released today (14) . The Selic rate suffered the seventh consecutive increase in the last week, going from 7.75% to 9.25% per year.
“For the next meeting, the committee foresees another adjustment of the same magnitude [1.5 percentage points]”, says the Copom minutes.
When assessing the risks to inflation, the Copom assesses that “new extensions of fiscal policies [increase in public spending] in response to the pandemic that put pressure on aggregate demand [demand for goods and services] and worsen the fiscal trajectory may raise risk premiums [relationship between risk and investment returns] of the country”.
“Despite the more positive performance of public accounts, the committee assesses that questions regarding the fiscal framework increase the risk of uncoupling inflation expectations, maintaining the upward asymmetry in the balance of risks. This implies a greater probability of trajectories for inflation above the projected one according to the basic scenario”, he adds.
Scenarios
In the minutes, the Copom says that it evaluated the possibility of making an adjustment greater than 1.5 percentage points in the Selic, but decided to maintain the adjustment pace. "It was concluded that the pace of adjustment of 1.5 percentage points, at this time, is adequate to reach, throughout the monetary tightening cycle, a sufficiently contractionary level to not only ensure the convergence of inflation over the relevant horizon, but also to consolidate the anchoring of expectations for longer terms”, adds the minutes.
For the Copom, the decision will cause inflation to converge to the target in 2022 and 2023. "Without prejudice to its fundamental objective of ensuring price stability, this decision also implies smoothing the fluctuations in the level of economic activity and fostering the full employment”, he emphasizes.
According to the Copom, in a scenario with projections for the Selic made by the financial market and the exchange rate at US$ 5.65, inflation by the Extended National Consumer Price Index (IPCA) is around 10.2% in 2021 , 4.7% in 2022 and 3.2% in 2023. This scenario assumes a trajectory of interest rates that rises to 11.75% per annum during 2022, ending next year at 11.25% per annum, and then reduces to 8% per year in 2023.
For 2021, the National Monetary Council (CMN) set the inflation target at 3.75%, with a tolerance margin of 1.5 percentage points. That is, the upper limit is 5.25% and the lower limit is 2.25%. The goal for 2022 is 3.50% and for 2023, it is 3.25%, with a tolerance interval of 1.5 percentage points for the two years. In other words, under this scenario, inflation will be above the upper limit of the target in 2021 and the center of the target in 2022.
Text translated using artificial intelligence.
