1. The global environment continues to be marked by prospects of below-potential global growth for next year. The easing of the COVID policy in China, a milder winter in Europe, and the possibility of a gradual decline in the US growth soften the expected global economic slowdown for the coming quarters due to the tightening of financial conditions in major economies.
2. The inflationary environment remains challenging, but recent data suggest some moderation at the margin in several countries. There is a normalization in supply chains and an accommodation in the prices of major commodities in the recent period, leading to a moderation in goods-related inflationary pressures. Conversely, the low degree of labor market slack in some economies, associated with a high current inflation and a high degree of inflation diffusion, suggests that inflationary pressures on the services sector should last longer.
3. The process of normalization of monetary policy in advanced economies continues towards restrictive rates synchronized across countries, tightening financial conditions and impacting economic growth expectations. A long-lasting period of high interest rates is foreseen after the process of increasing interest rates, which calls for greater caution in the conduct of economic policies also by emerging economies
4. Regarding the Brazilian economy, the set of indicators released since the previous Copom meeting continues to be in line with the scenario of deceleration expected by the Committee. It was observed that confidence indicators dropped and industrial production, trade, and services indicators downturned. The labor market, which surprised positively throughout 2022, still shows signs of deceleration, with a decline in net hirings in New CAGED and some stability in the unemployment rate stemming from setbacks in the employed population and the workforce.
5. Notwithstanding the slowdown at the margin, consumer inflation remains high. The inflation of the components more sensitive to the economic cycle and the monetary policy, which present greater inflationary inertia, remain above the range compatible with meeting the inflation target, albeit showing some marginal moderation. Inflation expectations for 2023 and 2024 collected by the Focus survey are around 5.7% and 3.9%, respectively.
6. In the reference scenario, the interest rate path is extracted from the Focus survey, and the exchange rate starts at USD/BRL 5.152 and evolves according to the purchasing power parity (PPP). The Committee assumes that oil prices follow approximately the futures market curve for the following six months and then start increasing 2% per year onwards. Moreover, the energy flag is assumed to be “yellow” in December 2023 and 2024. In this scenario, Copom’s inflation projections stand at 5.6% for 2023 and 3.4% for 2024. Inflation projections for administered prices are 10.6% for 2023 and 5.0% for 2024. The Committee decided again to emphasize the six-quarter-ahead horizon. On this horizon, which refers to 2024Q3, the 12-month inflation projection stands at 3.6%. The Committee judges that the uncertainty in its assumptions and projections is higher than usual.
7. The Committee analyzed an alternative scenario with stable interest rates throughout the entire relevant horizon. In this scenario, Copom’s inflation projections stand at 5.5% for 2023, 3.1% for 2024Q3, and 2.8% for 2024.
8. The Committee evaluated different assumptions, parameters, and scenarios in its discussion of inflation projections. On this subject, some members evaluated the possibility of incorporating some increase in the neutral interest rate, towards the movement observed in longer-term inflation expectations extracted from the Focus survey. The Committee chose, at this point, to maintain the neutral interest rate at 4%, but evaluated alternative scenarios and identified that the impacts on its projections of an increase in the neutral rate grow over time and become more relevant as of the second half of 2024.
9. Copom assesses that the scenario for prospective global growth looks a little less challenging as a result of the change in China's COVID policy and of the mild winter in Europe. Some members emphasized that economic activity and labor market data remain relatively resilient in the US. In China, the adjustments in sanitary restrictions should lead to a cyclical recovery in demand and a reduction in the risks of supply disruptions. However, the Committee assesses that the Chinese long-term growth is expected to remain lower than observed in the pre-pandemic period, reflecting both the adjustments in the real estate sector and the worsened demographics expected in the coming years. In Europe, the milder winter has also reduced the likelihood of extreme scenarios in energy supply. In the US, economic activity data have been pointing to deceleration, but still in an environment of very pressured labor market. Despite these short-term developments, the Committee continues to assess that the commitment and determination of central banks to reduce inflationary pressures and anchor expectations consolidate a global scenario of tightening of financial conditions for a longer period, with rates at the end of the tightening cycle maintained for a sufficiently long period at contractionary levels, raising the risk of a more pronounced global deceleration.
10. The Committee continues to assess that the process of global disinflation, especially regarding core inflation indicators, is challenging and will possibly happen more slowly than usually observed, since inflation is widespread in the services segment. However, some members highlighted the deceleration in the measures of core inflation in several countries.
11. Data on economic activity in Brazil continues to indicate a more moderate pace of marginal growth and employment data suggest a loss of dynamism. Some members observed a movement towards partial recomposition of recent real wages losses, but judge that this movement is expected and is coupled with a deceleration in nominal gains that is expected to intensify ahead. The Committee will continue to monitor the labor market releases, continuously assessing the role of lagged inflation and labor market pressures on wage adjustments. The set of released data, including the drop in confidence indicators and the deceleration in credit grants, together with the lagged effects of monetary policy, reinforce the Committee's expectation of a slowdown in the pace of economic activity, which should worsen over the coming quarters.
12. The Committee noted with particular concern the deterioration in longer-term inflation expectations. Such deterioration may have happened for several reasons, among them a possible perception of the Banco Central do Brasil (BCB) leniency with the targets set by the National Monetary Council (CMN), an expansionary fiscal policy that pressures the aggregate demand over the projection horizon, or the possibility of changes in the inflation targets already set.
13. In the first case, the BCB reaffirms its commitment to conduct monetary policy to achieve the established targets and assesses that, once the deanchoring is observed, it is necessary to remain even more vigilant in the conduct of monetary policy to reanchor expectations and thus reduce the future cost of the disinflation.
14. In the second case, the Committee considers that demand stimuli should be assessed in view of the stage of the economic cycle and the degree of slack in the economy, with monetary policy being the macroeconomic adjustment variable used to mitigate any inflationary effects of the fiscal policy.
15. Finally, regarding the third case, the BCB conducts monetary policy based on the targets set by the CMN. In summary, more important than analyzing the motivations for the rise in expectations, the Committee emphasizes that it will act to ensure that inflation converges to the targets.
16. The Committee also discussed the impacts of the fiscal scenario on inflation. In this discussion, it was again emphasized that the net effect of the conduct of fiscal policy on inflation is very dependent on the prevailing macroeconomic and financial conditions. Thus, by analyzing the multiple channels, including the movement in financial conditions arising from future interest rates, and updating the assumptions for the fiscal path to incorporate the sanctioned budget for 2023, the Committee assesses that the scenario for activity has not changed significantly. Some members have noted that the median projections of the Pre-Copom Questionnaire (PCQ) and the Focus survey for the 2023 primary deficit are much lower than that estimated in the federal budget, possibly incorporating the fiscal package announced by the Ministry of Finance. Copom sustained its usual governance of incorporating the policies already sanctioned by law, but it acknowledges that the implementation of the proposed fiscal package could reduce the upside inflation risk.
17. The Committee emphasizes that risks to its scenarios remain in both directions. Among the upside risks for the inflationary scenario and inflation expectations, it should be emphasized (i) a greater persistence of global inflationary pressures; (ii) the still heightened uncertainty about the country's future fiscal framework and fiscal stimuli that support aggregate demand, partially incorporated in inflation expectations and asset prices; and (iii) an output gap tighter than the one currently adopted by the Committee in its reference scenario, especially in the labor market. Among the downside risks, it should be noted (i) an additional reduction in the prices of international commodities measured in local currency; (ii) a greater than projected deceleration of global economic activity; and (iii) the continuity of tax cuts assumed to be reversed in 2023.
18. The current scenario, particularly uncertain on the fiscal side and with inflation expectations drifting away from the inflation target on longer horizons, calls for greater attention in the conduct of monetary policy. The Committee judges that this scenario raises the cost of the disinflation that is needed to reach the targets established by the CMN. In this scenario, Copom reaffirms its commitment to set monetary policy to meet the targets.
19. Copom discussed the conduct of monetary policy, considering the set of projections evaluated, as well as the balance of risks for inflation.
20. The Committee decided again to emphasize the six-quarter-ahead horizon for its projections but anticipates that, for the next quarter, it will resume adopting the usual horizon, according to the calendar years, since the six-quarter ahead horizon will coincide with the calendar year of 2024, and then there will be no direct effect of the tax changes in the usual horizon.
21. The Committee began its debate by evaluating whether the previously outlined strategy of stable interest rates would be sufficient for the convergence of inflation to its targets. For this purpose, Copom analyzed the main determinants of the inflation trajectory and how they behaved more recently.
22. Starting with the output gap, a deceleration in economic activity, credit, and more recently in the labor market was observed, as expected by the Committee given the monetary policy lags. In this regard, some members stressed that the deceleration should continue, and it is necessary for the monetary policy channels to act and for inflation to converge to its targets. It was also noted that economic growth prospects have not changed significantly in the recent period.
23. Services inflation has moderated but remains at a level not compatible with the target. The Committee focuses on services inflation since it responds to inflationary inertia and economic activity more directly, and both factors are expected to put less inflationary pressures over the horizon. In any case, this dimension continues to call for attention, and the Committee continues to evaluate the speed with which the convergence process will take place.
24. In the balance of risks, global inflationary pressures have eased, but there is still high uncertainty about the deceleration of the inflation process, which tends to be non-linear. The risks are likely to persist as long as a tight labor market is observed in several advanced economies. Concerning domestic risks, two sets of risks intersect on fiscal issues. Firstly, the fiscal framework revision reduces the visibility on public accounts for the coming years, introduces premia on asset prices, and impacts inflation expectations. Secondly, concerning fiscal stimuli, Copom will continue to monitor their impact on economic activity and inflation and reinforces that, in an environment of a narrowed output gap, the impact on inflation tends to outweigh the desired impact on activity. Some members noted that the implementation of the Ministry of Finance fiscal package should mitigate the fiscal risk and consider that it will be important to monitor the challenges for its implementation. Finally, the risk of a tighter-than-evaluated output gap persists, and the Committee will continue to assess data and models for a more thorough understanding.
25. Regarding downside inflation risks, international commodity prices in local currency have reduced, but the Committee assesses that the risk of a sharper slowdown in global economic activity remains on the horizon, despite this risk is to some degree reduced by China's reopening process. In this regard, the Committee will continue to monitor, on the one hand, the process of withdrawal of fiscal and monetary stimulus in advanced economies and, on the other hand, the Chinese reopening process.
26. Regarding inflation expectations, the Committee notes with concern the recent movement at longer horizons. In addition to the direct impact of the rise in expectations on inflation projections, the rise in long-term expectations raises the cost of the disinflation by requiring greater participation of other monetary policy channels and, consequently, a wider output gap to obtain the same fall in inflation. The Committee will remain vigilant and will persist until the anchoring of expectations is consolidated.
27. Copom’s projections have risen due to the increase in both administered and market prices. Among the preponderant factors for increased projections, the rise in Focus survey inflation expectations stands out. Projections conditioned by the assumptions of the reference scenario do not show convergence to the target over the relevant monetary policy horizon, but the introduction of a more extended monetary tightening, as in its alternative scenario, generates a relevant impact on the projections toward convergence to the targets.
28. Copom chose to maintain the interest rate, reinforcing the need to evaluate, over time, the cumulative impacts to be observed of the intense and timely monetary policy cycle already undertaken. Therefore, the Committee assessed that, given the data released, the inflation projections and expectations, the balance of risks, and the lagged effects of the monetary policy already in significantly contractionary territory, it was appropriate to maintain the interest rate at the level of 13.75% p.a. The Committee reinforced that it is necessary to remain vigilant, assessing if the strategy of maintaining the Selic rate for a longer period than in the reference scenario will be enough to ensure the convergence of inflation.
29. The Committee emphasizes that it will persist until the disinflationary process consolidates and inflation expectations anchor around its targets, which have shown deterioration at longer horizons since the previous meeting. The Committee emphasizes that it will not hesitate to resume the tightening cycle if the disinflationary process does not proceed as expected.
30. Considering the assessed scenarios, the balance of risks, and the broad array of available information, Copom decided to maintain the Selic rate at 13.75% p.a. The Committee judges that this decision reflects the uncertainty around its scenarios for prospective inflation, an even higher-than-usual variance in the balance of risks and is consistent with the strategy for inflation convergence to a level around its target throughout the relevant horizon for monetary policy, which includes 2023 and, to a larger degree, 2024. Without compromising its fundamental objective of ensuring price stability, this decision also implies smoothing economic fluctuations and fostering full employment.
31. The Committee remains vigilant, assessing if the strategy of maintaining the Selic rate for a longer period than in the reference scenario will be enough to ensure the convergence of inflation. The Committee emphasizes that it will persist until the disinflationary process consolidates and inflation expectations anchor around its targets, which have shown deterioration at longer horizons since the previous meeting. The Committee reinforces that future monetary policy steps can be adjusted and will not hesitate to resume the tightening cycle if the disinflationary process does not proceed as expected.
32. The following members of the Committee voted for this decision: Roberto de Oliveira Campos Neto (Governor), Bruno Serra Fernandes, Carolina de Assis Barros, Diogo Abry Guillen, Fernanda Magalhães Rumenos Guardado, Maurício Costa de Moura, Otávio Ribeiro Damaso, Paulo Sérgio Neves de Souza, and Renato Dias de Brito Gomes.


1. Regarding the global outlook, the pandemic resurgence in some major economies is reverting previous mobility gains and should affect short-term activity. However, promising results in COVID-19 vaccine trials tend to improve confidence and growth in the medium term. Economic slack, along with the communication of central banks of major economies, suggests monetary stimuli will last long, resulting in a favorable environment for emerging economies.
2. Turning to the Brazilian economy, recent indicators suggest the uneven recovery in economic activity continues, as expected. However, prospectively, uncertainty about economic growth remains larger than usual, especially for the period starting at the end of this year, concurrently with the expected unwinding of the emergency transfer programs.
3. Various measures of underlying inflation are in levels compatible with meeting the inflation target at the relevant horizon for monetary policy.
4. Inflation expectations for 2020, 2021, and 2022 collected by the Focus survey are around 4.2%, 3.3%, and 3.5%, respectively.
5. The latest inflation readings were higher than expected and, despite the predicted retraction of food price pressures, December inflation should remain elevated, with an off-schedule collection of tuition fees and the transition to the highest level of the electricity rates flag system. Despite the stronger short-term inflationary pressure, the Committee maintains the diagnosis that the current shocks are temporary, but continues to monitor closely its evolution, in particular, the core inflation readings.
6. The Copom's inflation projections in its baseline scenario, with the interest rate path extracted from the Focus survey and exchange rate starting at R$5.25/US$2and evolving according to the purchase power parity (PPP), stand around 4.3% for 2020, and 3.4% for 2021 and 2022. This scenario assumes a path for the Selic rate that ends 2020 at 2.00% p.a., rises to 3.00% p.a. in 2021 and 4.50% p.a. in 2022. In this scenario, inflation projections for administered prices are 2.3% for 2020, 5.7% for 2021, and 3.6% for 2022.
7. The scenario with constant interest rate at 2.00% p.a. and exchange rate starting at R$5.25/US$ and evolving according to the PPP yields inflation projections around 4.3% for 2020, 3.5% for 2021, and 4.0% for 2022. In this scenario, inflation projections for administered prices are 2.3% for 2020, 5.7% for 2021, and 3.7% for 2022.
8. The Copom’s baseline scenario for inflation encompasses risk factors in both directions.
9. On the one hand, economic slack may continue to produce a lower-than-expected prospective inflation trajectory, especially when this slack is concentrated in the service sector. This risk increases if a slower reversion of the pandemic effects lengthens the environment of high uncertainty and precautionary savings.
10. On the other hand, an extension of fiscal policy responses to the pandemic that aggravates the fiscal path or a frustration with the continuation of the reform agenda may increase the risk premium. The relative increase in the risks of these events implies an upward asymmetry to the balance of risks, i.e., in the direction of higher-than-expected paths for inflation over the relevant horizon for monetary policy.
11. Regarding the international economy, the Committee evaluated that new information brings distinct impacts to different horizons. In the short term, the pandemic resurgence, and the resulting increase in social distancing in some of the major economies should interrupt the recovery in demand. In the medium term, however, positive vaccine test results, as well as monetary and fiscal stimuli, should imply a stronger recovery. The perception of economic slack for an extended period, along with the communication of central banks of major economies, creates an environment of liquidity and return of capital flows, favorable to emerging economies.
12. The Copom members discussed the evolution of domestic economic activity in light of the available information and indicators. They judged that the transfer programs from the government have allowed for a relatively strong rebound in durable goods consumption and investment. However, recent data continue to reflect an uneven recovery in economic activity. Prospectively, the unpredictability associated with the pandemic evolution and the necessary adjustment in government spending from 2021 on increases the uncertainty about the economic recovery. The Committee judged that the risks associated with the pandemic evolution may imply a domestic scenario characterized by an even more gradual recovery.
13. The Copom members debated on the level of economic slack. As with activity, the Committee believes that the pandemic continues to have heterogeneous effects on different economic sectors. The transfer programs from the government have reduced slack in the goods sector. Service activities, however, especially those most directly affected by social distancing measures, face a greater reduction in demand. Prospectively, the evolution of these sectoral gaps will depend on the pandemic evolution and on the adjustment in public spending.
14. Next, the Committee discussed the implementation of monetary policy. Since its 232nd meeting, the Copom uses forward guidance, according to which, it does not intend to reduce the monetary stimulus, as long as specified conditions are met. The Committee judged that those conditions continue to hold: inflation expectations, as well as inflation projections for its baseline scenario, remain below the inflation target for the relevant horizon for monetary policy; the current fiscal regime has not been changed; and long-term inflation expectations remain well anchored.
15. The Copom continued its analysis, considering not only the baseline scenario but also the balance of risks. The Committee judged that, at this moment, the upward asymmetry in the balance of risks caused by fiscal risks is sufficient to compensate for the fact that inflation projections in its baseline scenario are below the target in the relevant horizon. The Committee, therefore, deemed as adequate the current level of monetary stimulus, which is being provided by the maintenance of the policy rate at 2.00% p.a. and by the forward guidance.
16. The Committee again pondered over the interpretation of its forward guidance fiscal clause, which conditions the non-elevation of interest rates to the maintenance of the current fiscal regime. The Committee reaffirmed that changes in fiscal policy that affect public debt trajectory, or compromise the fiscal anchor, would motivate a reassessment, even if the spending ceiling in nominal terms is still maintained. This reassessment would follow the inflation target framework, which is based on the analysis of prospective inflation and its balance of risks.
17. Finally, the Committee assessed the next steps in monetary policy, in particular the evolution of the forward guidance clause on expectations and inflation projections converging to the target. In the evaluation of the Copom, this convergence can occur for two reasons: (i) an increase of expectations and projections for 2021, and (ii) the evolution of the horizon, with an increase of the relative weight of 2022, for which the expectations and projections are, at this moment, close enough to the target. Thus, the Committee decided to add to its communication that, although the forward guidance might be withdrawn soon, this would not mechanically imply an increase in interest rates.
18. Taking into account the baseline scenario, the balance of risks, and the broad array of available information, the Copom unanimously decided to maintain the Selic rate at 2.00% p.a. The Committee judges that this decision reflects its baseline scenario for prospective inflation, a higher-than-usual variance in the balance of risks, and it is consistent with convergence of inflation to its target over the relevant horizon for monetary policy, which includes 2021 and 2022.
19. The Committee believes that persevering in the process of reforms and necessary adjustments in the Brazilian economy is essential for a sustainable economic recovery. The Copom also stresses that uncertainty regarding the continuation of the reform agenda and permanent changes to the fiscal consolidation process could result in an increase in the structural interest rate.
20. The Committee deems as adequate the current unusually strong level of monetary stimulus, which is being provided by the maintenance of the policy rate at 2.00% p.a. and by the forward guidance introduced in its 232nd meeting. The forward guidance stated that the Copom does not intend to reduce the monetary stimulus as long as specified conditions are met. The Committee judges that those conditions continue to hold. In spite of having increased since the last meeting, in particular for 2021, inflation expectations, as well as inflation projections for its baseline scenario, are still below the inflation target for the relevant horizon for monetary policy; the current fiscal regime has not been changed; and long-term inflation expectations remain well anchored.
21. The Copom judges that, since the adoption of the forward guidance, inflation expectations reverted their declining trend relative to the target for the relevant horizon. Additionally, over the next months, the 2021 calendar-year should become less relevant than the 2022 calendar-year, for which projections and expected inflation are around the target. A scenario of inflation expectations converging to the target suggests that the conditions for maintaining the forward guidance may soon no longer apply, which does not mechanically imply interest rate increases, since economic conditions still prescribe an extraordinarily strong monetary stimulus. In case the forward guidance ceases to apply, monetary policy will follow the inflation target framework, based on the analysis of prospective inflation and its balance of risks.
22. The following members of the Committee voted for this decision: Roberto Oliveira Campos Neto (Governor), Bruno Serra Fernandes, Carolina de Assis Barros, Fabio Kanczuk, Fernanda Feitosa Nechio, João Manoel Pinho de Mello, Maurício Costa de Moura, Otávio Ribeiro Damaso and Paulo Sérgio Neves de Souza.


1. Regarding the global outlook, the environment became less favorable. Some central banks in advanced economies expressed more clearly the need for caution given the increased persistence of inflation, turning the environment more challenging for emerging economies. In addition, the real state sector situation in China, the possibility of a winter Covid-19 wave, and the emergence of the Omicron variant add uncertainty about the pace of recovery in advanced economies. These events produced falls in some important commodity prices, but it is still too early to predict the extent of this movement.
2. In relation to the Brazilian economic activity, the release of the third quarter GDP figures revealed a slightly lower-than-expected evolution, although the activities most affected by the pandemic continued on a robust recovery path. Higher frequency indicators point to reduced economic activity, widespread among various sectors, in September and possibly in October. Likewise, the already available confidence indexes for the initial months of the current quarter show deterioration. Consequently, the Committee revised downward its expectations for activity in the short term.
3. For 2022, if, on the one hand, the rise in risk premia and the more intense tightening of financial conditions act stifling the economic activity, on the other hand Copom considers that economic growth tends to benefit from the performance of agriculture and livestock and from the remaining effects of the normalization process of the economy – particularly in the services sector and in the labor market – as the health crisis recedes.
4. Consumer inflation remains high, with increases spread among several components, and has proven to be more persistent than anticipated. The increase of industrial prices has not slowed down and should persist in the short term, whereas services inflation accelerated due to the gradual normalization in the sector’s activity, as expected. Recent readings were higher than expected and the surprise came in both the more volatile components, and on the items associated with core inflation. Prospectively, the significant drop in international energy commodity prices, which have had substantial volatility, has limited the upward revision of short-term projections.
5. The various measures of underlying inflation are above the range compatible with meeting the inflation target. Inflation expectations for 2021, 2022, and 2023 collected by the Focus survey are around 10.2%, 5.0%, and 3.5%, respectively.
6. Copom's inflation projections in its baseline scenario, with interest rate path extracted from the Focus survey and exchange rate starting at USD/BRL 5.652 and evolving according to the purchasing power parity (PPP), stand around 10.2% for 2021, 4.7% for 2022, and 3.2% for 2023. This scenario assumes a path for the Selic rate that rises to 9.25% p.a. in 2021 and to 11.75% p.a. in 2022, ending the year at 11.25% p.a., and drops to 8.00% p.a. during 2023. In this scenario, inflation projections for administered prices are 16.7% for 2021, 3.8% for 2022, and 5.2% for 2023. The energy flag is “water scarcity” in December 2021 and is assumed to be “red level 2” in December 2022 and in December 2023.
7. The Copom’s baseline scenario for inflation encompasses risk factors in both directions.
8. On the one hand, a possible reversion, even if partial, of the increase in the price of international commodities measured in local currency would produce a lower-than-projected inflation in the baseline scenario.
9. On the other hand, further extensions of fiscal policy responses to the pandemic that increase aggregate demand and deteriorate the fiscal path may pressure the country's risk premium.
10. Despite the more positive public accounts data, the Committee assesses that doubts regarding the fiscal framework increase the risk of deanchoring inflation expectations, keeping the upward asymmetry in the balance of risks. This implies a higher probability of inflation paths above the one projected under the baseline scenario.
11. Uncertainties regarding the future of the current fiscal framework have resulted in increased risk premia and raised the risk of deanchoring inflation expectations. This implies assigning greater probability to alternative scenarios that consider higher neutral interest rates. The Committee reiterates that the process of reforms and necessary adjustments in the Brazilian economy is essential for a sustainable economic growth. Weaknesses in the structural reform effort and permanent changes to the fiscal consolidation process could result in an increase in the structural interest rate.
12. Next, Copom discussed the implementation of monetary policy, considering not only the baseline scenario, but also the balance of risks for inflation. According to the baseline scenario, which uses the interest rate path extracted from the Focus survey and the exchange rate evolving according to the purchasing power parity, the inflation projections are above the target for 2022 and around the target for 2023.
13. As for the balance of risks, the Committee pondered that the risk of a deanchoring of longer-term expectations, derived from developments in the fiscal scenario, points to an upward bias for the projections of its baseline scenario. Hence, considering this bias due to asymmetric risks, Copom evaluated that its projections are above the target for both 2022 and 2023. Given this result, Copom concluded that the monetary tightening process should be more restrictive than that used in the baseline scenario throughout the relevant horizon.
14. Next, Copom assessed the appropriate pace of interest rate hikes. For such, it analyzed its inflation projections using simulations with monetary policy paths with different terminal rates, under several alternative scenarios. The Committee also compared scenarios with adjustments greater than 1.50 p.p. with scenarios in which the interest rate remains high for a longer period than that implied in the baseline scenario.
15. Based on these results, Copom members discussed the most appropriate strategy. The Committee concluded that adjustments of 1.50 p.p. at this moment are adequate to reach, throughout the process of monetary tightening, a level restrictive enough not only to ensure the convergence of inflation over the relevant horizon but also to consolidate the anchoring of longer-term expectations.
16. Taking into account the baseline scenario, the balance of risks, and the broad array of available information, the Copom unanimously decided to increase the Selic rate by 1.50 p.p. to 9.25% p.a. The Committee judges that this decision reflects its baseline scenario for prospective inflation, a higher-than-usual variance in the balance of risks, and it is consistent with convergence of inflation to the targets over the relevant horizon for monetary policy, which includes 2022 and 2023. Without compromising its fundamental objective of ensuring price stability, this decision also implies smoothing of economic fluctuations and fosters full employment.
17. The Committee considers that, given the increase in its inflation projections and in the risk of deanchoring long-term expectations, it is appropriate to advance the process of monetary tightening significantly into the restrictive territory. The Committee will persist in its strategy until the disinflation process and the expectation anchoring around its targets consolidate.
18. For the next meeting, the Committee foresees another adjustment of the same magnitude. The Copom emphasizes that its future policy steps could be adjusted to ensure the convergence of inflation towards its targets and will depend on the evolution of economic activity, on the balance of risks, and on inflation expectations and projections for the relevant horizon for monetary policy.
19. The following members of the Committee voted for this decision: Roberto Oliveira Campos Neto (Governor), Bruno Serra Fernandes, Carolina de Assis Barros, Fabio Kanczuk, Fernanda Magalhães Rumenos Guardado, João Manoel Pinho de Mello, Maurício Costa de Moura, Otávio Ribeiro Damaso, and Paulo Sérgio Neves de Souza.


1. Regarding the global outlook, the long-lasting monetary stimuli and the reopening of major economies still sustain a favorable environment for emerging markets.
2. Turning to the Brazilian economy, the second quarter GDP release as well as the most recent indicators continue to show a positive evolution and do not ensue relevant revisions in growth forecasts, which display a robust economic recovery during the second half of the year.
3. The various measures of underlying inflation are above the range compatible with meeting the inflation target.
4. Inflation expectations for 2021, 2022, and 2023 collected by the Focus survey are around 8.3%, 4.1%, and 3.25%, respectively.
5. Consumer inflation remains high. Industrial goods price increases – due to higher input costs, supply restrictions, and redirecting of services demand towards goods – has not subsided and should remain a pressure in the short run. In addition, services inflation has accelerated in recent months, reflecting the gradual normalization of the sector, as expected. Finally, pressures persist in volatile components such as food and fuel prices and especially electricity fares, due to factors including the exchange rate, commodity prices, and adverse weather conditions.
6. The Copom's inflation projections in its baseline scenario, with interest rate path extracted from the Focus survey and exchange rate starting at USD/BRL 5.252 and evolving according to the purchase power parity (PPP), stand around 8.5% for 2021, 3.7% for 2022, and 3.2% for 2023. This scenario assumes a path for the Selic rate that rises to 8.25% in 2021 and to 8.50% during 2022 and drops to 6.75% during 2023. In this scenario, inflation projections for administered prices are 13.7% for 2021, 4.2% for 2022, and 4.8% for 2023. The energy flag is assumed to be “water scarcity” in December 2021 and “red level 2” in December of 2022 and 2023.
7. The Copom’s baseline scenario for inflation encompasses risk factors in both directions.
8. On the one hand, a possible reversion, even if partial, of the recent increase in the price of international commodities measured in local currency would produce a lower-than-projected inflation in the baseline scenario.
9. On the other hand, further extensions of fiscal policy responses to the pandemic that increase aggregate demand and deteriorate the fiscal path may pressure the country's risk premium. In spite of the recent improvement of debt sustainability indicators, the elevated fiscal risk creates an upward asymmetry in the balance of risks, i.e., in the direction of higher-than-expected paths for inflation over the relevant horizon for monetary policy.
10. Regarding the global outlook, there are two additional risk factors to the growth of emerging economies. First, reductions in forecasts for growth in Asian economies, reflecting the evolution of the Covid-19 Delta variant. Second, a tightening of monetary conditions in various emerging economies, as a reaction to recent inflation surprises. However, the long-lasting monetary stimuli and the reopening of major economies still sustain a favorable environment for emerging markets. The Committee continues to consider that a new round of market discussion regarding inflationary risks in advanced economies could result in a challenging environment for emerging economies.
11. The Copom members discussed the evolution of domestic economic activity in light of the available information and indicators. The slightly better-than-expected second quarter GDP result was followed by more negative high frequency releases, albeit evolving favorably. These revisions stem partly from an anticipation of the expected growth for some of the sectors hardest hit by the pandemic, and partly from the lower industrial output due to continued shortage in supply chains. The Committee maintained its view of a robust recovery in activity in the second half of the year, as the effects of vaccination are felt more broadly. For 2022, Copom considers that economic growth should benefit from three tailwinds. First, the continued recovery of the labor market and the services sector, even if to a lesser extent than previously anticipated; second, the performance of sectors less dependent on the business cycle – such as agriculture and livestock and the extractive industry; and third, the remaining effects of the normalization of the economy as the health crisis recedes.
12. The Copom members then debated the level of economic slack. The reduction of unemployment - as the workforce and the occupied population - increase denotes that the labor market continues to recover. However, the levels at which the last two variables stand are considerably lower than those observed before the pandemic, suggesting a remaining gap in the labor market. In face of the difference between main employment indicators in the formal jobs segment – Continuous PNAD and Novo Caged, the latter showing a more robust recovery than the former – there are still some difficulties in assessing the real status of the labor market.
13. Next, Copom discussed the implementation of monetary policy, considering not only the baseline scenario, but also the balance of risks for inflation. According to the baseline scenario, which uses the interest rate path extracted from the Focus survey, the exchange rate at purchasing power parity, and commodity prices in USD stable in real terms, the inflation projections are slightly above the targets for 2022 and around the target for 2023. The Committee judged that the fiscal risks continue to imply an upward bias in the projections. This asymmetry in the balance of risks affects the appropriate degree of monetary stimulus thus justifying a path for monetary policy that is more restrictive than the path used in the baseline scenario.
14. In the face of this result, Copom evaluated the costs and benefits of accelerating the pace of interest rate hikes, considering the following. First, the stage of the adjustment cycle is characterized by an already effectively tightening monetary policy, which is evidenced when looking at the difference in expectations for the paths of interest rate and inflation over the relevant monetary policy horizon. Second, simulations with interest rate hikes that assume different terminal rates suggest that the current pace of adjustment is sufficient to reach a significantly restrictive level and to ensure the convergence of inflation to the target in 2022, even considering the asymmetry of the balance of risks. Finally, the weight of volatile items in the revisions of short-term inflation projections and the uniqueness of the post-pandemic economic readjustment process reinforce the benefit of accumulating more information about the state of the economy and the persistence of the existing shocks.
15. Copom concluded that, at this moment, maintaining the current pace of adjustment coupled with the extension of the magnitude of the process of monetary tightening to a significantly restrictive level is the most appropriate strategy for assuring the convergence of inflation to the 2022 and 2023 targets.
16. Taking into account the baseline scenario, the balance of risks, and the broad array of available information, Copom unanimously decided to increase the Selic rate by 1.00 p.p. to 6.25% p.a. The Committee judges that this decision reflects its baseline scenario for prospective inflation, a higher-than-usual variance in the balance of risks and is consistent with the convergence of inflation to its target over the relevant horizon for monetary policy, which includes 2022 and, to a lesser extent, 2023. Without compromising its fundamental objective of ensuring price stability, this decision also implies smoothing of economic fluctuations and fosters full employment.
17. The Committee considers that, at the present stage of the tightening cycle, this pace is the most appropriate to guarantee inflation convergence to the target at the relevant horizon and, simultaneously, allow the Committee to obtain more information regarding the state of the economy and the persistence of shocks. At this moment, the Copom’s baseline scenario and balance of risks indicate as appropriate to advance the process of monetary tightening further into the restrictive territory.
18. For the next meeting, the Committee foresees another adjustment of the same magnitude. Copom emphasizes that its future policy steps could be adjusted to ensure the achievement of the inflation target and will depend on the evolution of economic activity, on the balance of risks, and on inflation expectations and projections for the relevant horizon for monetary policy.
19. The following members of the Committee voted for this decision: Roberto Oliveira Campos Neto (Governor), Bruno Serra Fernandes, Carolina de Assis Barros, Fabio Kanczuk, Fernanda Magalhães Rumenos Guardado, João Manoel Pinho de Mello, Maurício Costa de Moura, Otávio Ribeiro Damaso, and Paulo Sérgio Neves de Souza.


1. Regarding the global outlook, new fiscal stimuli in some developed countries and the advancement of the Covid-19 immunization programs should promote a more robust economic recovery throughout the year. Economic slack and central bank communication from major economies suggest monetary stimuli will last long. However, market discussion regarding inflationary risks in these economies, and the associated repricing of financial assets, could result in a more challenging environment for emerging economies.
2. Turning to the Brazilian economy, recent indicators, particularly the GDP growth in the fourth quarter of 2020, continued to suggest a consistent economic recovery in spite of the reduction in the emergency income transfers. In general, higher frequency indicators suggest that this movement probably stretched until February, but this view requires caution given the greater difficulty in applying seasonal adjustments, due to recent volatility of data series and the changes to the holiday schedule at the state level. Besides, the latest readings do not capture the effects of the recent sharp increase in the number of Covid-19 cases. Prospectively, uncertainty about economic growth remains larger than usual, especially for the first and second quarters of this year.
3. The various measures of underlying inflation are in levels above the range compatible with meeting the inflation target.
4. Inflation expectations for 2021, 2022, and 2023 collected by the Focus survey are around 4.6%, 3.5%, and 3.25%, respectively.
5. The continuing increase in commodity prices, measured in local currency, is affecting current inflation, and has triggered additional increases in inflation forecasts for the next months, especially through its effects on fuel prices. Despite these stronger and more persistent than expected short-term inflationary pressures, the Committee maintains the diagnosis that the current shocks are temporary but continues to closely monitor its evolution.
6. The Copom's inflation projections in its baseline scenario, with interest rate path extracted from the Focus survey and exchange rate starting at R$5.70/US$2, and evolving according to the purchase power parity (PPP), stand around 5.0% for 2021 and 3.5% for 2022. This scenario assumes a path for the Selic rate that ends 2021 at 4.50% p.a. and rises to 5.50% p.a. in 2022. In this scenario, inflation projections for administered prices are 9.5% for 2021 and 4.4% for 2022.
7. The Copom’s baseline scenario for inflation encompasses risk factors in both directions.
8. On the one hand, the worsening of the pandemic may delay the economic recovery, producing a lower-than-expected prospective inflation trajectory.
9. On the other hand, an extension of fiscal policy responses to the pandemic that aggravates the fiscal path or a frustration with the continuation of the reform agenda may increase the risk premium. The relative increase in the risks of these events implies an upward asymmetry to the balance of risks, i.e., in the direction of higher-than-expected paths for inflation over the relevant horizon for monetary policy.
10. Regarding the global outlook, the Committee assessed that the progress in the implementation of Covid-19 immunization programs, the new fiscal stimuli in some developed countries, and the communication by central banks of major economies that monetary stimuli will be long-lasting should imply robust economic growth during the year. However, the discussion about reflation has increased volatility in some markets. This repricing of important financial assets could result in a more challenging environment for emerging economies.
11. The Copom members discussed the evolution of domestic economic activity in light of the available information and indicators. They evaluated that, despite the partial reduction in governmental emergency transfer programs, the economic recovery has been better than expected. However, they noted that the latest available data do not yet account for the possible effects of the recent sharp increase in the number of Covid-19 cases, and that there is considerable uncertainty about the pace of economic growth in the first and second quarters of this year. Looking ahead, the Committee assessed that a possible economic recovery setback due to the worsening of the pandemic would be less extreme than the one observed last year and would probably be followed by another fast recovery. For the Committee, the second half of the year may show a robust recovery, as the effects of vaccination are felt more broadly.
12. Next, the Copom members debated on the level of economic slack. The Committee believes that the pandemic produced heterogeneous effects across economic sectors, and that governmental emergency transfer programs reduced the slack in the goods sector. The Copom judges that economic activity and formal labor market data suggest that the overall slack has declined faster than anticipated, despite the increase in the unemployment rate.
13. Next, the Copom turned to the monetary policy discussion. In the Committee’s opinion, in addition to the strong pace of growth in recent months, with a consequent reduction in economic slack, there has been a reversal in inflation expectations. These expectations have moved to the upper part of the tolerance interval of the inflation target for 2021, and to around the target for 2022, the two calendar years within the relevant monetary policy horizon. As a result, the Copom members concluded that the current scenario ceased to prescribe an extraordinary degree of stimulus, and that the Copom should begin a process of partial normalization of the policy rate.
14. The Copom then discussed the implementation of monetary policy, considering not only the baseline scenario, but also the balance of risks for inflation. According to the baseline scenario, which uses the interest rate trajectory extracted from the Focus survey, the inflation projections are near the upper bound of the tolerance interval in 2021, and around the target in 2022.The Committee pondered that, despite the recent approval of important reforms, which will bring benefits in the medium term, the fiscal risks remain high in the short term due to the worsening of the pandemic, which implies an upward bias to these projections.This asymmetry in the balance of risks affects the appropriate degree of monetary stimulus, justifying a trajectory with a larger initial increase in the policy rate than that implied by the baseline scenario.
15. The Committee also highlighted that the delay in the normalization of the production chains, which puts pressure on production costs and inflation in specific sectors, suggests that there is also a positive demand shock at work.Several members also stressed that the inflationary pressures observed in 2021 may affect inflation expectations for 2022, risking a de-anchoring of expectations over the relevant horizon for monetary policy. Finally, regarding the recent dynamics of inflation, the Committee pointed out that, despite the diagnosis that the current shocks are temporary, the Brazilian inflation targeting regime aims at headline inflation in the calendar year. All these factors have contributed to a more assertive stance in the conduct of monetary policy.
16. Based on all these considerations, the Committee concluded that an initial adjustment of 0.75 p.p. in the Selic rate would be the most appropriate. This swifter adjustment of the degree of stimulus is compatible with meeting the target over the relevant horizon, even in a scenario of a temporary increase in social distancing.
17. Similarly, the Committee assessed that for the next meeting it would be appropriate to continue the process of partial normalization of the monetary stimulus with another adjustment of the same magnitude. The Copom reinforced that its views for the next meeting may be altered if there is a significant change in the inflation projections or the balance of risks, and that, ultimately, the decision will continue to depend on the evolution of economic activity, the balance of risks, and the inflation projections and expectations.
18. Considering the baseline scenario, the balance of risks, and the broad array of available information, the Copom unanimously decided to increase the Selic rate by 0.75 p.p. to 2.75% p.a. The Committee judges that this decision reflects its baseline scenario for prospective inflation, a higher-than-usual variance in the balance of risks, and it is consistent with convergence of inflation to its target over the relevant horizon for monetary policy, which includes 2021 and, mainly, 2022.
19. The Committee believes that persevering in the process of reforms and necessary adjustments in the Brazilian economy is essential for a sustainable economic recovery. The Copom also stresses that uncertainty regarding the continuation of the reform agenda and permanent changes to the fiscal consolidation process could result in an increase in the structural interest rate.
20. The Copom members consider that the current conditions ceased to prescribe an extraordinary stimulus. GDP ended 2020 growing strongly at the margin, recovering most of its first half-year decline, and inflation expectations rose above target at the relevant horizon for monetary policy. Additionally, inflation projections increased to levels close to the upper bound of the target for 2021.
21. Therefore, the Copom decided to start a process of partial normalization by reducing the extraordinary degree of monetary stimulus. For all the aforementioned reasons, the Committee considered appropriate an adjustment of 0.75 p.p. in the Selic rate. In the Committee's evaluation, a swifter adjustment has the benefit of reducing the probability of not meeting the inflation target in 2021, as well as of keeping longer horizon expectations well anchored. Additionally, the broad set of information available to the Committee suggests that this strategy is consistent with meeting the 2022 inflation target, even if social distancing increases temporarily.
22. For the next meeting, unless there is a significant change in inflation projections or in the balance of risks, the Committee foresees the continuation of the partial normalization process with another adjustment, of the same magnitude, in the degree of monetary stimulus. The Copom emphasizes that its view for the next meeting will continue to depend on the evolution of economic activity, the balance of risks, and inflation projections and expectations.
23. The following members of the Committee voted for this decision: Roberto Oliveira Campos Neto (Governor), Bruno Serra Fernandes, Carolina de Assis Barros, Fabio Kanczuk, Fernanda Feitosa Nechio, João Manoel Pinho de Mello, Maurício Costa de Moura, Otávio Ribeiro Damaso and Paulo Sérgio Neves de Souza.


1. Regarding the global outlook, new fiscal stimuli in some developed countries and the advancement of the Covid-19 immunization programs should promote a more robust economic recovery throughout the year. Economic slack and central bank communication from major economies suggest monetary stimuli will last long. However, market discussion regarding inflationary risks in these economies could result in a more challenging environment for emerging economies.
2. Turning to the Brazilian economy, recent indicators are evolving better than expected in spite of the second wave of the pandemic being more intense than anticipated. Prospectively, uncertainty about economic growth still remains larger than usual but should gradually return to its normal level.
3. The various measures of underlying inflation are at the top of the range compatible with meeting the inflation target.
4. Inflation expectations for 2021, 2022, and 2023 collected by the Focus survey are around 5.0%, 3.6%, and 3.25%, respectively.
5. With the exception of oil, commodity prices continued to increase, impacting food and industry price projections. Additionally, the transition to higher energy prices related to the electricity tariff flag system should keep inflation under pressure in the short run. The Committee maintains the diagnosis that the current shocks are temporary but continues to closely monitor its evolution.
6. The Copom's inflation projections in its baseline scenario, with interest rate path extracted from the Focus survey and exchange rate starting at R$5.40/US$2 and evolving according to the purchase power parity (PPP), stand around 5.1% for 2021 and 3.4% for 2022. This scenario assumes a path for the Selic rate that ends 2021 at 5.50% p.a. and rises to 6.25% p.a. in 2022. In this scenario, inflation projections for administered prices are 8.4% for 2021 and 5.0% for 2022.
7. The Copom’s baseline scenario for inflation encompasses risk factors in both directions.
8. On the one hand, economic recovery from the pandemic can be slower than estimated, producing a lower-than-expected prospective inflation trajectory.
9. On the other hand, further extensions of fiscal policy responses to the pandemic that aggravate the fiscal path, or a frustration with the continuation of the reform agenda, may add pressure to the country's risk premium. The relative increase of the risks of these events implies an upward asymmetry to the balance of risks, i.e., in the direction of higher-than-expected paths for inflation over the relevant horizon for monetary policy.
10. Regarding the global outlook, the Committee assessed that the progress in the implementation of Covid-19 immunization programs, the new fiscal stimuli in some developed countries, and the communication by central banks of major economies that monetary stimuli will be long-lasting should imply robust economic growth during the year. However, the discussion about “reflation”, in particular about the risk of a lasting inflation increase in the United States, could result in a more challenging environment for emerging economies.
11. The Copom members discussed the evolution of domestic economic activity in light of the available information and indicators. They considered that, despite the greater-than-expected intensity of the second wave of the pandemic, the latest available economic activity data have surprised positively. For the Committee, the second half of the year should bring a robust recovery, as the effects of the vaccine rollout are felt more broadly.
12. The Copom members then debated the level of economic slack. Although the economic slack as a whole is returning to the late 2019 level in the coming quarters, the Committee considered that the pandemic produced heterogeneous effects across economic sectors. Whereas the goods sector operates with low slack, the service sector is struggling to recover. The Copom judges that economic activity and formal labor market data suggest that the overall slack has declined faster than anticipated, despite the increase in the unemployment rate.
13. Next, the Copom discussed the implementation of monetary policy, considering not only the baseline scenario, but also the balance of risks for inflation. According to the baseline scenario, which uses the interest rate path extracted from the Focus survey, inflation projections are slightly below the target for 2022. The Committee pondered that short-term fiscal risks remain high, implying an upward bias in these projections. This asymmetry in the balance of risks affects the appropriate degree of monetary stimulus, therefore justifying a 0.75 p.p. increase in the interest rate in this meeting.
14. The Copom then evaluated different normalization paths for the Selic rate. Considering the baseline scenario and the balance of risks, the Committee deemed appropriate another adjustment of the same magnitude in the next meeting, unless inflation determinants change. Additionally, the Committee noted that subsequent uninterrupted increases in the interest rate up to the level considered neutral imply projections considerably below the inflation target at the relevant horizon. The Copom reinforced that its views for the next meeting may be altered if there is a change in inflation projections or in the balance of risks, since the decision will continue to depend on the evolution of economic activity, the balance of risks, and the inflation projections and expectations.
15. The Committee then discussed the communication of monetary policy and, in particular, the reference to a “partial normalization” of the interest rate. The Committee members pointed out that “partial normalization” reflects their opinions on the appropriate monetary policy for the convergence of inflation to target over the relevant horizon. The Copom understands that the reference to "partial normalization", as well as the disclosure of the implicit neutral rate and the output gap in the models used by the Committee, increases the transparency of the Central Bank’s reaction function and, consequently, improves monetary policy efficiency. Naturally, the Copom reevaluates its scenario at every meeting committed to the convergence of inflation to the target over the relevant horizon.
16. Considering the baseline scenario, the balance of risks, and the broad array of available information, the Copom unanimously decided to increase the Selic rate by 0.75 p.p. to 3.50% p.a. The Committee judges that this decision reflects its baseline scenario for prospective inflation, a higher-than-usual variance in the balance of risks, and it is consistent with convergence of inflation to its target over the relevant horizon for monetary policy, which includes 2022. Without compromising its fundamental objective of price stability, this decision also implies smoothing of economic fluctuations and fosters full employment.
17. At this moment, the Copom's baseline scenario indicates that a partial normalization of the policy rate remains appropriate to keep some degree of monetary stimulus during the economic recovery. However, the Committee emphasizes that there is no commitment with this plan, and that future steps of monetary policy could be adjusted to assure the achievement of the inflation target.
18. For the next meeting the Committee foresees the continuation of the partial normalization process with another adjustment of the same magnitude in the degree of monetary stimulus. The Copom emphasizes that its view will continue to depend on the evolution of economic activity, the balance of risks, and inflation projections and expectations.
19. The following members of the Committee voted for this decision: Roberto Oliveira Campos Neto (Governor), Bruno Serra Fernandes, Carolina de Assis Barros, Fabio Kanczuk, Fernanda Feitosa Nechio, João Manoel Pinho de Mello, Maurício Costa de Moura, Otávio Ribeiro Damaso and Paulo Sérgio Neves de Souza.


1. Regarding the global outlook, the environment remains less favorable. More persistent inflation raises the chances of faster monetary tightening in the US, turning financial conditions more challenging for emerging economies. In addition, the recent Covid-19 wave adds uncertainty about the pace of activity, and at the same time could delay the normalization of global supply chains. Since the previous meeting, most commodities reversed the decline observed at the end of the year and, in some cases, reached recent records, reinforcing the global environment of pressured prices.
2. Turning to the Brazilian economic activity, trade and services indicators showed a slightly better-than-expected evolution in November, while industry recovered in December. Labor market indicators showed consistent job recovery in 2021Q4.
3. For 2022, if, on the one hand, the rise in risk premia and the more intense tightening of financial conditions act stifling the economic activity, on the other hand Copom still considers that economic growth tends to benefit from the performance of agriculture and livestock and from the remaining effects of the normalization process of the economy, particularly in the services sector and in the labor market. However, confidence indexes released since the previous meeting continue to deteriorate, and weather developments have affected the projections for important agricultural crops.
4. Consumer inflation remains high, with increases spread among several components, and continues to be more persistent than anticipated. The increase of industrial prices has not slowed down and should persist in the short term, while services inflation accelerated, still reflecting the gradual normalization in the sector’s activity. Recent readings were higher than expected and the surprise came in both the more volatile components and particularly on the items associated with core inflation.
5. The various measures of underlying inflation are above the range compatible with meeting the inflation target. Inflation expectations for 2022 and 2023 collected by the Focus survey are around 5.4% and 3.5%, respectively.
6. The Copom's inflation projections in its reference scenario2, with interest rate path extracted from the Focus survey and exchange rate starting at USD/BRL 5.453 and evolving according to the purchasing power parity (PPP), stand around 5.4% for 2022 and 3.2% for 2023. This scenario assumes a path for the Selic rate that rises to 12% p.a. in the first half of 2022, ends the year at 11.75% p.a., and drops to 8.00% p.a. during 2023. In this scenario, inflation projections for administered prices are 6.6% for 2022 and 5.4% for 2023. The energy flag is assumed to be “red level 1” in December of 2022 and 2023.
7. Regarding administered prices, the revision was mainly due to the strong increase in oil prices since the previous meeting of the Committee, as well as administered items whose variations will be repeated throughout the year. These pressures were only partially offset by the change in the hypothesis of the energy flag for the end of 2022, which reflected the improved rainfall scenario.
8. The Copom’s reference scenario for inflation encompasses risk factors in both directions.
9. On the one hand, a possible reversion, even if partial, of the increase in the price of international commodities measured in local currency would produce a lower-than-projected inflation in the reference scenario.
10. On the other hand, fiscal policies that imply additional impulses to aggregate demand or deteriorate the future fiscal path may have a negative impact on prices of important financial assets as well as pressure the country’s risk premia.
11. In spite of the more favorable public accounts data, the Committee assesses that the uncertainties regarding the fiscal framework maintain elevated the risk of deanchoring inflation expectations and, therefore, the upward asymmetry in the balance of risks. This implies a higher probability of inflation paths above the one projected under the reference scenario.
12. Uncertainties regarding the future of the current fiscal framework result in increased risk premia and raises the risk of deanchoring inflation expectations. This implies assigning greater probability to alternative scenarios that consider higher neutral interest rates. The Committee reiterates that the process of reforms and necessary adjustments in the Brazilian economy is essential for a sustainable economic growth. Weaknesses in the structural reform effort and permanent changes to the fiscal consolidation process could result in an increase in the structural interest rate. Additionally, the Committee notes that even fiscal policies that have a downward effect on inflation in the short term can cause a deterioration in the country's risk premia, increase inflation expectations, and consequently have an upward effect on prospective inflation.
13. Next, Copom discussed the implementation of monetary policy, considering not only the reference scenario, but also the balance of risks for inflation. According to the reference scenario, which uses the interest rate path extracted from the Focus survey and the exchange rate evolving according to the purchasing power parity, the inflation projections are above the upper limit of the tolerance band of the target for 2022, and around the target for 2023.
14. As for the balance of risks, the Committee pondered that the risk of deanchoring longer-term expectations, derived from developments in the fiscal scenario, sustains an upward bias for the projections of its reference scenario. Hence, considering this bias due to asymmetric risks, Copom evaluated that its projections are above the target for both 2022 and 2023. Therefore, Copom once more concluded that the monetary tightening process should be more restrictive than that used in the reference scenario throughout the relevant horizon.
15. Next, Copom assessed the appropriate pace of interest rate hikes. For such, it analyzed its inflation projections using simulations with monetary policy paths with different terminal rates, adjustment paces, and duration of monetary tightening. It is worth noting that the scenarios considered, consistent with the convergence of inflation to its targets, assumed a higher interest rate path than that used in the reference scenario.
16. Based on these results, Copom members discussed the most appropriate strategy. The Committee concluded that another adjustment of 1.50 percentage points, followed by additional adjustments at a slower pace in the next meetings, is the most appropriate strategy to achieve sufficient monetary tightening and ensure inflation convergence over the relevant horizon, as well as the anchoring of long-term inflation expectations.
17. Finally, the particularly high uncertainty surrounding important asset and commodity prices, as well as the stage of the tightening cycle, led the Committee to judge more appropriate, at this moment, not to signal the size of its future steps.
18. Taking into account the reference scenario, the balance of risks, and the broad array of available information, the Copom unanimously decided to increase the Selic rate by 1.50 p.p. to 10.75% p.a. The Committee judges that this decision reflects its reference scenario for prospective inflation, a higher-than-usual variance in the balance of risks and is consistent with the convergence of inflation to its target throughout the relevant horizon for monetary policy, which includes 2022 and, to a larger degree, 2023. Without compromising its fundamental objective of ensuring price stability, this decision also implies smoothing of economic fluctuations and fosters full employment.
19. The Committee considers that, given the increase in its inflation projections and in the risk of deanchoring long-term expectations, it is appropriate to advance the process of monetary tightening significantly into the restrictive territory. The Committee emphasizes that it will persist in its strategy until the disinflation process and the expectation anchoring around its targets consolidate.
20. For its next steps, the Committee foresees as adequate, at this moment, a reduction in the pace of adjustment of the interest rate. This indication reflects the stage of the tightening cycle as its cumulative effects will manifest themselves over the relevant horizon. The Copom emphasizes that its future policy steps could be adjusted to ensure the convergence of inflation towards its targets and will depend on the evolution of economic activity, on the balance of risks, and on inflation expectations and projections for the relevant horizon for monetary policy.
21. The following members of the Committee voted for this decision: Roberto Oliveira Campos Neto (Governor), Bruno Serra Fernandes, Carolina de Assis Barros, Fernanda Magalhães Rumenos Guardado, João Manoel Pinho de Mello, Maurício Costa de Moura, Otávio Ribeiro Damaso, and Paulo Sérgio Neves de Souza.


1. Regarding the global outlook, the strong recovery in some economic sectors seems to be subsiding, partly due to the pandemic resurgence in some major economies. There is significant uncertainty regarding the evolution of this scenario due to a possible decline in government stimuli and to the evolution of the COVID-19 itself. However, the moderation in financial assets volatility keeps resulting in a relatively favorable environment for emerging economies.
2. Turning to the Brazilian economy, similarly to other countries, recent indicators suggest an uneven recovery in economic activity. Sectors more directly affected by social distancing measures remain depressed despite the offsetting effects of the transfer programs. Prospectively, uncertainty about economic growth remains larger than usual, especially for the period starting at the end of this year, concurrently with the expected unwinding of the emergency transfer programs.
3. The various measures of underlying inflation are in levels compatible with meeting the inflation target at the relevant horizon for monetary policy.
4. Inflation expectations for 2020, 2021, and 2022 collected by the Focus survey are around 3.0%, 3.1%, and 3.5%, respectively.
5.  The latest inflation readings were higher than expected, and the Committee raised its projection for the remaining months of 2020. This revision was due to continuing food and industrial price increases which, in turn, are a consequence of a persistent exchange rate depreciation, the oil price rise, and the income transfer programs. On the one hand, the partial normalization of some depressed prices should continue, in a context of a recovery in mobility indices and activity level. On the other hand, some prices, which rose extraordinarily due to a temporary reduction in supply in conjunction with an occasional increase in demand, are expected to reverse. Therefore, in spite of the stronger-than-expected inflationary pressure, the Committee maintains the diagnosis that this shock is temporary, although closely monitoring its evolution.
6. The Copom's inflation projections in its baseline scenario, with interest rate path extracted from the Focus survey and exchange rate starting at R$5.60/US$2 and evolving according to the purchase power parity (PPP), stand around 3.1% for 2020, 3.1% for 2021 and 3.3% for 2022. This scenario assumes a path for the Selic rate that ends 2020 at 2.00% p.a., rises to 2.75% p.a. in 2021 and 4.50% p.a. in 2022. In this scenario, inflation projections for administered prices are 0.8% for 2020, 5.1% for 2021, and 3.9% for 2022.
7. The scenario with constant interest rate at 2.00% p.a. and exchange rate starting atR$5.60/US$ and evolving according to the PPP yields inflation projections around 3.1% for 2020, 3.2% for 2021 and 3.8% for 2022. In this scenario, inflation projections for administered prices are 0.8% for 2020, 5.1% for 2021, and 4.0% for 2022.
8. The Copom’s baseline scenario for inflation encompasses risk factors in both directions.
9. On the one hand, economic slack may continue to produce a lower-than-expected prospective inflation trajectory, especially when this slack is concentrated in the service sector. This risk increases if a slower reversion of the pandemic effects lengthens the environment of high uncertainty and precautionary savings.
10. On the other hand, the extension of fiscal policy responses to the pandemic that aggravate the fiscal path or a frustration with the continuation of the reform agenda may increase the risk premium. The relative increase in the risks of these events imply an upward asymmetry to the balance of risks, i.e., in the direction of higher-than-expected paths for inflation over the relevant horizon for monetary policy.
11. Regarding the international economy, the recent pandemic resurgence and the consequent increase in social distancing in some of the major economies may interrupt recovery in demand. A potential non-organized and abrupt reduction of governmental stimuli also brings risks to the economic recovery. For now, however, the reduction in financial asset volatility keeps resulting in a relatively favorable environment for emerging economies. Still, the Committee judged that there is significant uncertainty about the evolution of this scenario.
12. The Copom members discussed the evolution of domestic economic activity in light of the available information and indicators. They assessed that recent data suggest an uneven recovery in economic activity. The transfer programs from the government have allowed for a relatively strong rebound in durable goods consumption and investment. However, several service sector activities, especially those more directly affected by social distancing measures, remain significantly depressed. Prospectively, the unpredictability associated with the pandemic evolution and the necessary adjustment in government spending from 2021 onwards increases the uncertainty about the maintenance of the economic activity recovery. The Committee considered that this unpredictability and the risks associated with the evolution of the pandemic may imply a domestic scenario characterized by an even more gradual economic recovery.
13. The Copom members debated on the level of economic slack. As with activity, the Committee believes that the pandemic should continue to have heterogeneous effects on the economic sectors. Given the nature of the shock, the economic slack in the service sector should remain larger than in other sectors. The Committee concluded that the nature of the crisis probably implies that disinflationary pressures from reduced demand may last longer than in previous recessions.
14. The Committee then resumed the discussion of a potential effective lower limit for the Brazilian policy interest rate and its connection with prudential and financial stability issues. Considering the long history of the Brazilian economy operating at very high levels of Selic rate, unprecedented low interest rates may compromise the performance of some markets and economic sectors, with a potential impact on financial intermediation. For the majority of the Copom members, we would already be close to the level from which further interest rate reductions could be accompanied by asset price instability
15. Subsequently, the Copom members discussed on the maintenance of the signaling that “the remaining space for monetary policy stimulus, if it exists, should be small”. The Committee assessed that this signaling is due to prudential restrictions regarding reductions of the Selic rate and, therefore, should be kept in communication.
16. Next, the Committee discussed the implementation of the monetary policy itself. Since its 232nd Meeting, the Copom has adopted forward guidance, according to which, it does not intend to reduce the monetary stimulus as long as specified conditions are met. The Committee judged that those conditions continue to hold: inflation expectations, as well as inflation projections for its baseline scenario, are significantly below the inflation target for the relevant horizon for monetary policy; the current fiscal regime has not been changed; and long-term inflation expectations remain well anchored.
17. The Copom continued its analysis, considering not only the baseline scenario, but also the balance of risks, and restrictions of prudential nature. Regardless of prudential restrictions, the Copom considered that, at this moment, the upward asymmetry in the balance of risks caused by fiscal risks is sufficient to compensate the fact that its inflation projections in the baseline scenario are below the target at the relevant horizon. The Committee, therefore, deemed as adequate the current level of monetary stimulus, which is being provided by the maintenance of the policy rate at 2.00% p.a. and by the forward guidance, regardless of prudential nature restrictions.
18. Finally, the Committee discussed the interpretation of the fiscal clause of its forward guidance, which conditions the non-elevation of interest rates to the maintenance of the current fiscal regime. The Committee judged that changes in the fiscal policy that affect the public debt trajectory or compromise the fiscal anchor would motivate a reassessment, even if the spending ceiling in nominal terms is still maintained. This reassessment would follow the usual guidance of an inflation targeting regime, based on prospective inflation and its balance of risks.
19. Taking into account the baseline scenario, the balance of risks, and the broad array of available information, the Copom unanimously decided to maintain the Selic rate at 2.00% p.a. The Committee judges that this decision reflects its baseline scenario for prospective inflation, a higher-than-usual variance in the balance of risks, and it is consistent with convergence of inflation to its target over the relevant horizon for monetary policy, which includes 2021 and 2022.
20. The Committee believes that persevering in the process of reforms and necessary adjustments in the Brazilian economy is essential for a sustainable economic recovery. The Copom also stresses that uncertainty regarding the continuation of the reform agenda and permanent changes to the fiscal consolidation process could result in an increase in the structural interest rate.
21. The Copom believes that the current economic conditions continue to recommend an unusually strong monetary stimulus but it recognizes that, due to prudential and financial stability reasons, the remaining space for monetary policy stimulus, if it exists, should be small.
22. The Committee deems as adequate the current level of monetary stimulus, which is being provided by the maintenance of the policy rate at 2.00% p.a. and by the forward guidance introduced in its 232nd meeting. The forward guidance stated that the Copom does not intend to reduce the monetary stimulus as long as specified conditions are met. The Committee judges that those conditions continue to hold: inflation expectations, as well as inflation projections for its baseline scenario, are significantly below the inflation target for the relevant horizon for monetary policy; the current fiscal regime has not been changed; and long-term inflation expectations remain well anchored.
23. The following members of the Committee voted for this decision: Roberto Oliveira Campos Neto (Governor), Bruno Serra Fernandes, Carolina de Assis Barros, Fabio Kanczuk, Fernanda Feitosa Nechio, João Manoel Pinho de Mello, Maurício Costa de Moura, Otávio Ribeiro Damaso and Paulo Sérgio Neves de Souza.


1. Regarding the global outlook, the recovery in major economies, although uneven across sectors, along with a moderation in financial assets volatility, is resulting in a relatively favorable environment for emerging economies. However, there is significant uncertainty regarding the evolution of this scenario due to a possible decline in government stimuli and to the evolution of the Covid-19 pandemic itself.
2. Turning to the Brazilian economy, recent indicators suggest a partial recovery in economic activity. This is similar to the pattern of other economies, where sectors more directly affected by social distancing measures remain depressed. The transfers and other government programs have allowed the Brazilian economy to recover faster than other emerging countries. Prospectively, uncertainty about economic growth remains larger than usual, especially for the period starting at the end of this year, concurrently with the expected unwinding of the emergency programs.
3. Various measures of underlying inflation remain below the level compatible with meeting the inflation target at the relevant horizon for monetary policy.
4. Inflation expectations for 2020, 2021, and 2022 collected by the Focus survey are around 1.9%, 3.0%, and 3.5%, respectively.
5. Consumer inflation should rise in the short term due to a temporary food price increase and a partial normalization of some service prices, in a context of a recovery in activity and mobility. Administered prices should change moderately reflecting a decline in health plan rates in September and an expected drop in gasoline prices by October.
6. The Copom's inflation projections in the hybrid scenario with interest rate path extracted from the Focus survey and constant exchange rate at R$5.30/US$2 stand around 2.1% for 2020, 2.9% for 2021 and 3.3% for 2022. This scenario assumes a path for the Selic rate that ends 2020 at 2.0% p.a., rises to 2.5% p.a. in 2021 and 4.5% p.a. in 2022. In this scenario, inflation projections for administered prices are 0.0% for 2020, 4.3% for 2021, and 3.7% for 2022.
7. The scenario with constant interest rate at 2.00% p.a. and constant exchange rate at R$5.30/US$ yields inflation projections around 2.1% for 2020, 3.0% for 2021 and 3.8% for 2022. In this scenario, inflation projections for administered prices are 0.0% for 2020, 4.3% for 2021, and 3.9% for 2022.
8. The Copom’s baseline scenario for inflation encompasses risk factors in both directions.
9. On the one hand, economic slack may continue to produce a lower-than-expected prospective inflation trajectory, especially when this slack is concentrated in the service sector. This risk increases if a slower reversion of the pandemic effects lengthens the environment of high uncertainty and precautionary savings.
10. On the other hand, fiscal policy responses to the pandemic that aggravate the fiscal path for a long time or frustrations regarding the continuation of the reform agenda may increase the risk premium. Additionally, the credit and transfer programs implemented in response to the pandemic may cause a smaller-than-estimated decline in aggregate demand, introducing an asymmetry to the balance of risks. This set of factors could potentially result in a higher-than-expected path for inflation over the relevant horizon for monetary policy.
11. Regarding the global outlook, the recovery in major economies, although concentrated in the goods market, along with a moderation in financial assets volatility, is resulting in a relatively favorable environment for emerging economies. The Committee considered, however, that there is significant uncertainty about the evolution of this benign scenario. A possible sudden and unorganized reduction in government stimuli may delay the recovery of consumption and inventories. Meanwhile, the evolution of the Covid-19 pandemic may act as a limit to the full recovery of the service sector.
12. The Copom members discussed the evolution of domestic economic activity in light of the available information and indicators. They evaluated that recent data suggest a partial recovery of economic activity. Government transfer programs have allowed for a relatively strong rebound in durable goods consumption and investment. However, several service sector activities, especially those more directly affected by social distancing measures, remain significantly depressed. Looking forward, the poor predictability associated with the evolution of the pandemic and the necessary decline in emergency aid by the end of 2020 increase uncertainty about the speed of the economic recovery. The Committee considered that this unpredictability and the risks associated with the evolution of the pandemic may imply a domestic scenario characterized by an even more gradual recovery of the economy.
13. The Copom members debated on the level of economic slack. As with activity, the Committee believes that the pandemic should continue to have heterogeneous effects on the economic sectors. Given the nature of the shock, the service sector should continue to have a larger economic slack than other sectors. The Committee concluded that the nature of the crisis probably implies that the disinflationary pressures from reduced demand may last longer than in previous recessions.
14. The Committee then resumed the discussion of a potential effective lower limit for the Brazilian policy interest rate and its connection with prudential and financial stability issues. For the majority of the members of the Copom, this limit would be significantly higher among emerging economies than among developed countries due to the existence of a risk premium. This premium is dynamic and tends to be larger in Brazil, given the country's relative fiscal fragility and the uncertainties regarding its prospective fiscal path. In this context, we would already be close to the level from which further interest rate reductions could be accompanied by asset price instability.
15. The Copom also discussed the relative importance of the main components of credit and operating costs of the financial system. Considering the long history of the Brazilian economy operating with the reference interest rate at a very high level, the unprecedented low interest rates may compromise the performance of some markets and economic sectors, with potential impact on financial intermediation. Based on results from stress test scenarios, the Committee concluded that the financial system is resilient to the credit risk arising from the current pandemic. However, in analyzing the financial system in a broad way – considering its various industries, markets, products and financial services – the Committee reflected that an unprecedented low interest rate environment may increase asset prices volatility. Moreover, without the necessary time to transition to a new environment, it may affect the proper functioning and dynamics of the financial system and the capital markets. Hence, the Committee concluded that possible new interest rates reductions would demand caution and additional gradualism. To this end, if necessary, further interest rate cuts would require greater clarity about prospective inflation and activity and could be spaced over time.
16. In order to raise the degree of monetary stimulus provided by the traditional instrument, but maintaining the necessary caution for prudential reasons, since its 232nd Meeting, the Copom has adopted forward guidance as an additional monetary policy instrument.
17. To adapt the forward guidance to the dynamic limits imposed by prudential issues, the Committee considered that it should have an asymmetric policy intention, in which, if the necessary conditions were met, the Copom would not raise the interest rate but could reduce it. To maximize its effectiveness, the Committee decided that this forward guidance should be conditional on inflation expectations, as well as on the inflation projections of its baseline scenario, for the relevant monetary policy horizon, which currently includes 2021 and, to a lesser extent, 2022. This information on inflation would be considered altogether and, when they were sufficiently close to the inflation target for the corresponding horizon, they would indicate the end of the intention.
18. Given the difficulties inherent in using forward guidance in emerging economies, in addition to expectations and projections of inflation in the relevant horizon, the Committee also deemed necessary to condition its interest rate policy intention on two other factors. First, it is conditional on the maintenance of the fiscal regime, since its rupture would imply significant changes to the structural interest rate of the economy. Second, it is conditional on the anchoring of long-term inflation expectations, given that an unanchoring would indicate that the costs derived from the monetary stimulus would be outweighing its benefits.
19. Finally, the Copom judged that the conditions for the maintenance of the forward guidance continue to be met. The Committee considers that inflation expectations, as well as inflation projections for its baseline scenario, are significantly below the inflation target for the relevant monetary policy horizon; the current fiscal regime has not been changed; and long-term inflation expectations remain well anchored.
20. Taking into account the baseline scenario, the balance of risks, and the broad array of available information, the Copom unanimously decided to maintain the Selic rate at 2.00% p.a. The Committee judges that this decision reflects its baseline scenario for prospective inflation, a higher-than-usual variance in the balance of risks, and it is consistent with the convergence of inflation to its target over the relevant horizon for monetary policy, which includes 2021 and, to a lesser extent, 2022.
21. The Committee believes that persevering in the process of reforms and necessary adjustments in the Brazilian economy is essential for a sustainable economic recovery. The Copom also stresses that doubts regarding the continuation of the reform agenda and permanent changes to the fiscal consolidation process could result in an increase in the structural interest rate.
22. The Copom believes that the current economic conditions continue to recommend an unusually strong monetary stimulus, but it recognizes that, due to prudential and financial stability reasons, the remaining space for monetary policy stimulus, if it exists, should be small. Consequently, possible future adjustments to the current degree of monetary stimulus would occur with additional gradualism and would depend on the perception of the fiscal trajectory, as well as on new information that changes the Committee's current assessment about prospective inflation.
23. To provide the monetary stimulus deemed adequate to meet the inflation target, but maintaining the necessary caution for prudential reasons, the Copom considered appropriate to continue to adopt forward guidance as an additional monetary policy tool. Therefore, despite the asymmetry on its balance of risks, the Copom does not intend to reduce the monetary stimulus unless inflation expectations, as well as its baseline scenario inflation projections, are sufficiently close to the inflation target at the relevant horizon for monetary policy, which currently includes 2021 and, to a lesser extent, 2022. This intention is conditional on the maintenance of the current fiscal regime and on the anchoring of long-term inflation expectations.
24. The following members of the Committee voted for this decision: Roberto Oliveira Campos Neto (Governor), Bruno Serra Fernandes, Carolina de Assis Barros, Fabio Kanczuk, Fernanda Feitosa Nechio, João Manoel Pinho de Mello, Maurício Costa de Moura, Otávio Ribeiro Damaso and Paulo Sérgio Neves de Souza.