1. The global environment remains uncertain, with some disinflation at the margin but with still high core inflation, gradual slowdown in economic activity, and resilience in the labor market of many countries. At the same time, the central banks of major economies remain committed to bringing inflation back to its targets, either by continuing their monetary tightening cycles or by signaling a prolonged period of high interest rates to fight inflationary pressures. This stance continues to call for greater caution in the conduct of economic policies, particularly by emerging countries.
2. Regarding the domestic scenario, the recent set of indicators suggests a scenario of gradual deceleration of activity. Apart from the strong performance of agriculture, concentrated in the first quarter, the pace of activity growth continues to corroborate the scenario anticipated by the Committee. In general, there is some retraction in the trade sector, stability in industry and some accommodation in the services sector, after a stronger growth pace in previous quarters. The labor market remains resilient but with some moderation at the margin.
3. Consumer inflation continues to show more benign current dynamics, particularly in industrial goods and food components. Although the inflation of the components more sensitive to the economic cycle and the monetary policy, which have greater inflationary inertia, declined, they remain above the inflation target. Inflation expectations for 2023, 2024, and 2025 collected by the Focus survey have reduced and are around 4.8%, 3.9%, and 3.5%, respectively.
4. In the reference scenario, the interest rate path is extracted from the Focus survey, and the exchange rate starts at USD/BRL 4.752 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 “green” in December 2023, 2024, and 2025. In this scenario, Copom’s inflation projections stand at 4.9% for 2023, 3.4% for 2024, and 3.0% for 2025. Inflation projections for administered prices are 9.4% for 2023, 4.6% for 2024, and 3.5% for 2025.
5. The Committee evaluates that the international outlook is uncertain. The Committee noted the resilience of activity and the labor market in advanced economies, even if some moderation is observed at the margin, as well as lower growth projection for the Chinese economy. In this context some members see a mild moderation in activity in major economies as more likely, although a sharper slowdown is not ruled out. A disinflation process at the margin is observed, reflecting the slowdown of commodity pressures after the initial impacts of the war in Ukraine and the normalization of productive sectors, but with a slow decline in core inflation. Looking ahead, uncertainties remain about the global inflation dynamics. The downward movement in commodity prices has stalled in the recent period, and risks related to weather phenomena, the war in Ukraine, and international oil pricing policy suggest the possibility of renewed supply-side inflationary pressures. Furthermore, it is observed resilience of the labor market and tight output gap in advanced economies, in an environment of still pressured services inflation in several economies. Thus, central banks remain committed to control inflation by maintaining tighter monetary policy for a longer period. Such determination, albeit with a likely impact upon domestic asset prices in the short term, coupled with a credit slowdown in major economies, contributes to a more credible and lasting global disinflationary process. Moreover, the Committee considered that the synchronization of contractionary monetary policy may have a larger-than-expected impact on the global output gap and on the disinflation process. The larger-than-expected upward impact on inflation of the synchronization of expansionary fiscal and monetary policies across countries during the pandemic was mentioned again.
6. Growth data for Brazil remain consistent with the reference scenario of moderating activity anticipated by the Committee. The process of rebalancing the consumption basket, and, consequently, relative prices, between goods and services continues, with moderation in the consumption of goods in favor of greater demand in the services segment. However, the services sector has been moderating in recent months. In addition, more timely data continue to suggest that the pace of economic growth is in line with the Committee's expectations. Again, an in-depth discussion of developments in the labor market took place. Some members still consider that there is a recent moderation in the labor market, which points to the slowdown in the pace of hirings in the formal market and the decline in the participation rate. Other members emphasized the drop in the unemployment rate and the still high pace of hirings in formal employment. The Committee agreed that there is no evidence of high wage pressures in labor negotiations. Some members noted that the recent process towards a partial recomposition of previous losses in real wages moves forward. This movement is expected and has been accompanied by a deceleration in nominal gains, which is expected to intensify ahead.
7. The Committee analyzed different output gap metrics and assumptions, comparing not only the estimate of the current gap level under different methods, but also their impacts on the inflation projection. It was noted that the speed with which the gap is assumed to close over the projection horizon is as important as the initial level assumed for the gap. It was then discussed the risk that the output gap is tighter than assumed in the reference scenario, in particular in the labor market, and assessed the impacts of this alternative assumption on inflation projections. The Committee emphasizes that the output gap is an unobservable variable, subject to uncertainty in its measurement and with even greater uncertainty after the pandemic period.
8. The Committee believes that the disinflation dynamics continues to be characterized by a process with two distinct stages. The first-stage movement proved deeper than expected, given the more benign dynamics of food and industrial prices and the behavior of wholesale prices. In this regard, the recent dynamics of the exchange rate and international commodity prices, although with greater volatility, has contributed to slow down international pressures on inflation in Brazil. On the one hand, this phenomenon improves the dynamics of the second stage of disinflation, with lower inertia on core inflation and services inflation. On the other hand, the inherent volatility of food and industrial goods components suggests the possibility of abrupt reversals, recommending caution. In this debate, the risks related to El Niño, which were partially incorporated into the reference scenario, were mentioned, as were those related to international oil price developments, which followed the Committee's usual governance in its assumptions. In the end, it was unanimously concluded that a contractionary and cautious monetary policy was needed to reinforce the disinflationary dynamics.
9. Also in the discussion on inflationary behavior, the current stage of the disinflationary process and the recent behavior of services inflation were discussed in depth. It was noted that the indicators of this segment point to continuity in the trajectory of disinflation in the recent period, despite some oscillation at levels still above the value compatible with the target. In such a discussion, it was emphasized that it is more relevant to focus on its underlying fundamentals – in particular, possible changes in the labor market and in the dynamics of activity – than on punctual movements in services inflation, relative to some component or some period.
10. Inflation expectations have shown partial reanchoring since the previous Copom meeting. The Committee emphasized the credibility gain produced by the June meeting of the National Monetary Council (CMN), which established the inflation target for 2026, as well as its tolerance range, at the same values as those for 2024 and 2025 and without revising the targets and ranges previously established for 2023, 2024, and 2025. In addition, the announcement of a change to a continuous target system, with rules yet to be set out, has reduced uncertainty about the targets for subsequent years, also contributing to further reanchoring. Therefore, there was a positive impact on inflation expectations immediately after the CMN's decision, reinforcing the interpretation that the inflation targeting regime has gained credibility.
11. However, the reanchoring is still partial and the Committee discussed again the reasons for such deanchoring. Members raised several possibilities. The Committee removed residual uncertainty about the approval of the fiscal framework from its balance of risks but noted in its discussion that fiscal dynamics remained relevant in its reference scenario. In particular, some members assessed that some uncertainty persists among agents about overcoming fiscal challenges, evidenced in primary balance expectations that diverge from the targets set by the government, and that this may also be reflected in unanchored inflation expectations for longer maturities. In this case, anchoring expectations around the targets set out in the new fiscal framework, with the maintenance of the fiscal commitment in addition to a reduction in uncertainties about the tax measures that underpin the implementation of this objective, would contribute to a faster disinflationary process. Others evaluated that a global scenario with higher inflation also makes it difficult to reanchor expectations, since there is a possibility of external inflation at higher levels for a longer period. Finally, the hypothesis of the agents’ perception that, over time, the Banco Central do Brasil (BCB) would become more lenient in fighting inflation was mentioned. Copom members unanimously understand that, regardless of the BCB’s board composition, the Institution’s credibility and reputation should be ensured.
12. Copom reminds that structural reforms and the predictability of public accounts are essential to increase the economy’s productivity, raise the potential growth, and improve the confidence of business, investors, and households. The lack of commitment with structural reforms, the increase of earmarked credit granting, and the uncertainties about the stabilization of the public debt have the potential to raise the neutral interest rate of the economy, with harmful impacts on the monetary policy power and, consequently, on its cost to the economy.
13. 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; and (ii) a stronger than expected resiliency on services inflation due to a tighter output gap. Among the downside risks, it should be noted (i) a greater than projected deceleration of global economic activity, particularly due to adverse conditions in the global financial system; and (ii) an impact on global disinflation larger than expected from synchronized monetary policy tightening.
14. Copom discussed the conduct of monetary policy, considering the set of projections evaluated, as well as the balance of risks for inflation.
15. The Committee unanimously evaluated that the evolution of the scenario since the previous meeting has given the necessary confidence to start a gradual cycle of monetary easing. This evaluation involved different dimensions. Firstly, it was emphasized the positive behavior of inflation expectations following the setting of the target by the CMN and the announcement of the change to a continuous target system. The reduction of inflation expectations, as well as of break-even inflation rates, reduces the cost of disinflation and impacts the ex-ante real interest rate of the economy, as previously alerted by Copom. Secondly, headline inflation measures registered a clear improvement, while services inflation continues decelerating at the margin. Some members emphasized the recent dynamics, while others emphasized that the underlying fundamentals for the dynamics of services inflation do not allow yet to convincingly extrapolate the recent benign behavior. Regarding the output gap, some members noted the upward revision in its estimate, and the Committee discussed the implications of alternative output gap measures from other models and their respective impacts on projections. Finally, it was observed that the partial reanchoring of expectations contributed to reducing projections in the reference scenario. However, this movement was counterbalanced by updating some variables in the reference scenario that affect estimates and projections of the output gap, so that inflation projections did not differ significantly from those of the previous meeting. After the scenario evaluation, all members agreed that it was appropriate to reduce the Selic rate in this meeting.
16. During the debate, the Committee judged that both the options of reducing the Selic rate by 0.25 percentage point or 0.50 percentage point had merit, reinforcing that, whatever the decision, there was a consensus that a scenario with inflation expectations with only a partial reanchoring, core inflation still above the target, services inflation still above the level compatible with the inflation target, and resilient economic activity requires a more conservative stance throughout the cycle of monetary policy easing. Moreover, both options, depending on the cycle undertaken, would be consistent with the convergence of inflation to the target in the Copom’s reference scenario and in other scenarios discussed in the meeting.
17. One group was in favor of a more parsimonious interest rate reduction. For this group, the Committee’s signaling itself already emphasized the caution and parsimony inherent to this scenario and, according to these members, no relevant changes had been observed either in the scenario or in Copom's projections that justified the re-evaluation of this signaling. Other group considered that the monetary policy stance at a significantly contractionary degree allows the start of the cycle already at the moderate pace considered for the next meetings, without compromising the commitment to achieve the target and the credibility of monetary policy. This group emphasized that some events observed since the previous meeting, as the recent inflation dynamics more benign than expected, the partial reanchoring relatively fast after the CMN’s target setting, and the adequacy of recalibrating the real interest rate in view of the inflation expectations movements.
18. Regarding the next steps, Copom members unanimously anticipated cuts of 0.50 percentage point in the next meetings and judged that this pace is appropriate to keep the necessary contractionary monetary policy for the disinflationary process. This pace brings together, on the one hand, the firm commitment with the reanchoring of expectations and the disinflationary dynamics and, on the other hand, the adjustment in the level of monetary tightening in real terms in face of the more benign dynamics of the anticipated inflation in the reference scenario projections. Copom also evaluated that there is no evidence of an ongoing monetary tightening beyond that necessary for the inflation convergence to the target, and the scenario still calls for caution, reinforcing the view of serenity and moderation that Copom has expressed. The Committee judges that there is low probability of an additional intensification in the pace of adjustment, since this would require substantial positive surprises that would raise even further the confidence in the prospective disinflationary dynamics. Such confidence would arise only with a significant change in the fundamentals of inflation dynamics, such as a much more solid reanchoring of expectations, a sharp widening of the output gap, or a services inflation dynamics substantially more benign than the expected.
19. Finally, the Committee debated the extension of the monetary policy adjustments cycle. Copom analyzed the projections in the reference scenario, in a scenario of an interest rate reduction of 0.50 percentage point in this meeting, and in alternative scenarios that reflected the balance of risks. It was emphasized, in this analysis, the need to maintain a still contractionary monetary policy in the relevant horizon to consolidate the inflation convergence to the target and the anchoring of expectations. Copom emphasized that the extension of the cycle over time will depend on the inflationary dynamics, especially the components that are more sensitive to monetary policy and economic activity, on inflation expectations, in particular the longer-term ones, on its inflation projections, on the output gap, and on the balance of risks. The Committee maintains its firm commitment to the convergence of inflation to the target in the relevant horizon and reinforces that the extension of the cycle will reflect the BCB’s legal mandate.
20. Considering the assessed scenarios, the balance of risks, and the broad array of available information, Copom decided to reduce the Selic rate by 0.50 percentage point, to 13.25% p.a., and judges that this decision is consistent with the strategy for inflation convergence to a level around its target throughout the relevant horizon for monetary policy, which includes the year of 2024 and, to a lesser extent, 2025. Without compromising its fundamental objective of ensuring price stability, this decision also implies smoothing economic fluctuations and fostering full employment.
21. The Committee reinforces the need to persist on a contractionary monetary policy until the disinflationary process consolidates and inflation expectations anchor around its targets.
22. Copom considered the alternative option to reduce the Selic rate to 13.50%, but it concluded that it was appropriate to adopt a 0.50 percentage point pace in this meeting due to an improvement in the inflation dynamics, reinforcing however the firm objective of keeping a contractionary monetary policy to reanchor expectations and bring inflation to the target in the relevant horizon. The current context, characterized by a stage in which the disinflationary process tends to be slower and with partial reanchoring of inflation expectations, requires serenity and moderation in the conduct of monetary policy. If the scenario evolves as expected, the Committee members unanimously anticipate further reductions of the same magnitude in the next meetings, and it judges that this pace is appropriate to keep the necessary contractionary monetary policy for the disinflationary process. The Committee emphasizes that the total magnitude of the easing cycle throughout time will depend on the inflation dynamics, especially the components that are more sensitive to monetary policy and economic activity, on inflation expectations, in particular the longer-term ones, on its inflation projections, on the output gap, and on the balance of risks.
23. The following members of the Committee voted a reduction of 0.50 percentage point: Roberto de Oliveira Campos Neto (Governor), Ailton de Aquino Santos, Carolina de Assis Barros, Gabriel Muricca Galípolo, and Otávio Ribeiro Damaso. The following members voted for a reduction of 0.25 percentage point: Diogo Abry Guillen, Fernanda Magalhães Rumenos Guardado, Maurício Costa de Moura, and Renato Dias de Brito Gomes.


1. The global environment remains challenging. Despite some attenuation on the stress involving banks in the US and Europe and the limited contagion on financial conditions so far, the situation still requires monitoring. It is noticeable, however, a tightening in the US credit markets with still uncertain impacts but with a negative bias for the economic growth.
2. At the same time, the central banks of major economies remain committed to bringing inflation back to its targets, in an environment in which inflation has been resilient. Recent inflation readings from several countries point to some stabilization of core inflation at levels above their targets and reinforce the persistent nature of the current inflationary process. Furthermore, it has been recently observed the resumption of the cycle of interest rate hikes in some economies that, in their majority, signal a prolonged period of high interest rates to fight inflationary pressures, which calls for greater caution in the conduct of economic policies also by emerging countries.
3. Regarding the domestic scenario, the recent set of indicators suggests a scenario of gradual deceleration. The release of the GDP for the first quarter of 2023 surprised positively, with most of the surprise reflecting the agricultural performance, but with less dynamism in the more cyclical economic sectors. The labor market, which surprised positively throughout 2022, has shown some resilience, with a net increase in job creation and relative stability in the unemployment rate. However, a reduction in the participation rate was observed.
4. Consumer inflation has been reduced in the recent period, with emphasis on the dynamics in industrial goods and food. The inflation of the components more sensitive to the economic cycle and the monetary policy, which present greater inflationary inertia, showed an incipient improvement, but remain above the range compatible with meeting the inflation target. Inflation expectations for 2023 and 2024 collected by the Focus survey have reduced and are around 5.1% and 4.0%, respectively.
5. In the reference scenario, the interest rate path is extracted from the Focus survey, and the exchange rate starts at USD/BRL 4.852 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 “green” in December 2023 and 2024. In this scenario, Copom’s inflation projections stand at 5.0% for 2023 and 3.4% for 2024. Inflation projections for administered prices are 9.0% for 2023 and 4.6% for 2024.
6. Following the extensive debate and based on the accumulated evidence over recent meetings, the Committee opted to increase the estimated neutral real interest rate from 4.0% p.a. to 4.5%. Copom members evaluated the different factors that justify an increase and converged on the conclusion that there was a rise in the neutral rate. Among the mentioned factors that support the increase of the neutral interest rates are the likely increase of neutral interest rates in the major economies, the resilience in the Brazilian economic activity jointly with a slow disinflationary process, as well as an analysis of supporting models that incorporate different methodologies.
7. The Committee evaluates that the international outlook is somewhat more favorable for the inflationary process in Brazil, but the low degree of slack in the labor market in some economies and the current inflation persistently high and widespread in the services sector suggest that inflationary pressures should take long to dissipate. However, some factors might reduce external inflationary pressures. First among these is the commitment of central banks to the control of inflation by maintaining tighter financial conditions for a longer period. Such determination, albeit with a likely impact upon domestic asset prices in the short term, coupled with a credit slowdown in major economies, contributes to a more credible and lasting global disinflationary process. Besides, the recent dynamics of the exchange rate and international commodity prices, although with greater volatility, also contribute to slowdown international pressures.
8. Brazilian activity data, in particular the release of the GDP growth for the first quarter of 2023, continues to indicate a deceleration in the sectors most sensitive to the economic cycle. At the margin, the pace of growth was moderate, except for the strong growth of the agricultural sector. In any case, it is anticipated that after this greater growth in the agricultural sector in the first quarter has passed – due to the seasonality of the harvest – the process of moderating growth in the more cyclical sectors of the economy will deepen over the following quarters.
9. The Committee debated the recent labor market data. On the one hand, formal employment data continued to reveal increase in job creation in the most recent period. On the other hand, the unemployment rate remains relatively stable, but with a lower participation rate than in the pre-pandemic period. The Committee discussed the possible reasons for the fall in the participation rate, evaluating whether this movement should be read as structural or cyclical, which would have different impacts on the participation rate in effect in the long term. Some members noted that the recent process towards a partial recomposition of losses in real wages moves forward. This movement is expected and has been accompanied by a deceleration in nominal gains, which is expected to intensify ahead.
10. The Committee believes that the disinflation dynamics is still characterized by a process with two distinct stages. In the first stage, already completed, the speed of disinflation was greater, with a greater effect on administered prices and an indirect effect on market prices through less inertia. In the second stage, which is currently observed, the speed of disinflation is slower, and core inflation – which is more affected by the aggregate demand and the interest rate policy – declines at a slower pace, responding to the output gap and future inflation expectations. The Committee reaffirms that the disinflation process at its current stage demands serenity and patience in the conduct of monetary policy to ensure the convergence of inflation to its targets.
11. Still in the discussion about inflationary behavior, the recent benign behavior of wholesale prices was emphasized, both for food and industrial goods. On the food front, logistical issues, together with favorable weather and a good harvest contributed to a revision in the outlook for food prices for 2023 and, to a lesser extent, for 2024. For the latter, however, the uncertainty about the impact of the El Niño phenomenon stands out. Regarding industrial goods, wholesale prices, as well as the normalization of supply chains, have also led to a revision in the dynamics of these sectors. The Committee assesses that the consolidation of such dynamics contributes to the disinflationary process and should have some indirect impact on the other items. In terms of the trajectory of consumer inflation over 2023, it should be noted that the continuity of the drop is expected in the twelve-month inflation during this second quarter, due to the base effect of the previous year. For the second half of 2023, however, a higher twelve-month inflation is expected, as a consequence of the exclusion in this indicator of the effect of the tax measures that reduced the price level in the third quarter of 2022 and of the maintenance of the effects of this year's tax measures. Copom emphasizes that it will also continue to monitor inflationary dynamics in underlying inflation measures, which best reflect the current inflation trend as well as its prospects.
12. Inflation expectations remain deanchored from the targets set by the National Monetary Council, with a small reduction of the deanchoring at the margin. The Committee continues to assess that deanchored expectations raise the cost of bringing inflation back to the target. It was emphasized again that the behavior of expectations is a fundamental aspect of the inflationary process since it serves as a guide for present and future prices and wages setting. Thus, as expectations rise, there is a greater upward pressure on prices in the current period and the inflationary process is fueled by these expectations. It was also highlighted that the anchoring of expectations is a key factor for price stability. In this context, the Committee reinforces that decisions that induce the reanchoring of expectations and that raise confidence in inflation targets would contribute to a faster and less costly disinflation process, allowing monetary easing.
13. The domestic credit granting scenario is compatible with the current stage of the monetary policy cycle. The Committee anticipates a moderation in credit granting over the next few months, but in line with what has been observed in previous monetary policy tightening cycles. The Committee stresses that the BCB has the appropriate and necessary liquidity instruments, associated with macroprudential policy, to deal with relevant frictions in the system, should they occur.
14. The Committee also discussed the impacts of the fiscal scenario on inflation and assesses that the presentation and processing of the fiscal framework have substantially reduced the uncertainty surrounding fiscal risk. Challenges to meet the targets set for the primary result remain, although in the Committee's discussion, the commitment and the presentation of measures to achieve these results were emphasized. Copom again emphasized that there is no mechanical relationship between the convergence of inflation and the approval of the fiscal framework since the inflation path is conditional on the reaction of inflation expectations and financial conditions.
15. 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) some residual uncertainty about the final fiscal framework to be approved by the National Congress and, more relevant for monetary policy, its impacts on the expected paths of the public debt and of inflation expectations, and on risky assets; and (iii) a larger or more persistent deanchoring of long-term inflation expectations. Among the downside risks, it should be noted (i) an additional reduction in the prices of international commodities measured in local currency, even though a sizable portion of this movement has already been observed; (ii) a greater than projected deceleration of global economic activity, particularly due to adverse conditions in the global financial system; and (iii) a slowdown in domestic credit concession larger than what would be compatible with the current stance of monetary policy.
16. Copom then discussed the conduct of monetary policy, considering the set of projections analyzed, as well as the balance of risks for prospective inflation.
17. The Committee judges that the current context, marked by unanchored expectations for longer terms and characterized by a stage of the disinflationary process that tends to be slower, requires parsimony and caution in the conduct of monetary policy.
18. The Committee unanimously believes that flexibilization of the degree of monetary tightening requires confidence in the trajectory of the disinflation process, since premature flexibilization could lead to a reacceleration of the inflationary process and, consequently, to a reversal of the monetary easing process itself. The materialization of this type of scenario can negatively impact not only the credibility of monetary policy, but also the financial conditions.
19. In this debate, a divergence was observed in the Committee concerning the degree of signaling regarding the next steps. The prevailing assessment was that the continuation of the ongoing disinflationary process, with its consequent impact on expectations, may allow the necessary confidence to be built up to start a parsimonious process of inflection at the next meeting. Another group was more cautious, emphasizing that the disinflationary dynamics still reflects the retreat of the most volatile components and that the uncertainty about the output gap creates doubt about the impact of the monetary tightening implemented so far. For this group, it is necessary to observe further reanchoring of long-term expectations and accumulate more evidence of disinflation in the more cyclically sensitive components. However, the Committee members unanimously agreed that the future steps of monetary policy will depend on the inflationary dynamics, especially the components that are more sensitive to monetary policy and economic activity, on inflation expectations, in particular the longer-term ones, on its inflation projections, on the output gap, and on the balance of risks.
20. Following the usual analysis, the Committee discussed the different determinants that impact the conduct of the monetary policy. Listing the determinants analyzed in the meeting, there was no major change in the forward-looking output gap scenario, where the gap is projected to open slowly. Resilience of the economic activity in the first quarter was discussed, but the Committee's view remains that growth was driven by the agricultural sector and that the other sectors should show modest growth throughout 2023. As for services inflation and core inflation a slow deceleration movement is observed, in line with the non-linear process anticipated by the Committee. In addition, inflation expectations declined slightly, but remain deanchored, partially due to the questioning about a possible change in future inflation targets. The Committee believes that decisions that reanchor expectations can lead to faster disinflation. Copom's inflation projections have been reduced, especially in the relevant scenario, to a large extent due to lower inflation expectations. Finally, on the balance of risks, the Committee assesses that uncertainty about the final design of the fiscal framework is residual. Besides this, it noted that part of the downward risk coming from commodity prices has already materialized in the recent period.
21. 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. and judges that this decision is consistent with the strategy for inflation convergence to a level around its target throughout the relevant horizon for monetary policy, which includes the year of 2024. Without compromising its fundamental objective of ensuring price stability, this decision also implies smoothing economic fluctuations and fostering full employment.
22. The current context, characterized by a stage in which the disinflationary process tends to be slower and in an environment of deanchored inflation expectations continues to require caution and parsimony. Copom reaffirms its commitment to set monetary policy to meet the targets and judges that the strategy of maintaining the Selic rate for a long period has been adequate 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. The Committee judges that the current scenario demands patience and serenity in the conduct of monetary policy and reminds that the future steps of monetary policy will depend on the inflationary dynamics, especially the components that are more sensitive to monetary policy and economic activity, on inflation expectations, in particular the longer-term ones, on its inflation projections, on the output gap, and on the balance of risks.
23. The following members of the Committee voted for this decision: Roberto de Oliveira Campos Neto (Governor), 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. The global environment remains adverse and volatile, with marked downward revisions on prospective global growth in an environment of inflationary pressures.
2. The growth of major economies has been revised down for 2022 and 2023 due to the expected reversal of the stimuli implemented during the long pandemic period, in particular, those of monetary policy. Furthermore, the war in Ukraine impacts the supply of natural gas, thus bringing additional uncertainty to the European economic scenario, whereas, in China, the deterioration of the real estate sector, coupled with the policy to fight Covid-19, negatively impact the country’s growth prospects.
3. Inflation rates figures in some advanced economies released in the period suggest the persistence of strong pressures, although an incipient normalization in the supply chains and accommodation in the prices of leading commodities is already observed recently. Coupled with the adjustment of inventories of industrial goods, these developments might imply the moderation of inflationary pressures related to goods. On the other hand, the degree of slack in the labor market in these economies suggests that inflationary pressures in the sector of services might take long to dissipate.
4. Central banks in developed and emerging countries have adopted a more contractionary stance against increased inflation. The acceleration in the process of normalization of monetary policy in advanced economies, the increase in risk aversion, and the change in the growth outlook have impacted financial conditions in both advanced and emerging economies, affecting the volatility of assets and economic growth prospects. The Committee continues monitoring the risks involving a global deceleration in a highly pressured inflationary environment.
5. Turning to the Brazilian economy, the set of indicators released since the previous Copom meeting continues to suggest that the economy grew throughout the second quarter, with the labor market recovery stronger than expected by the Committee. Indicators related to both formal job openings and employment and unemployment rates suggest a rapid normalization in the labor-intensive sectors after the pandemic.
6. Consumer inflation remains high, with increases spread among several components, and continues to be more persistent than anticipated. The reduction of taxes on energy prices is already observed in high frequency indicators, although the components more sensitive to the economic cycle and monetary policy, with higher inflationary inertia, continue above the range compatible with meeting the inflation target. Inflation expectations for 2022, 2023, and 2024 collected by the Focus survey are around 7.2%, 5.3%, and 3.3%, respectively.
7. In the reference scenario, the interest rate path is extracted from the Focus survey, and the exchange rate starts at USD/BRL 5.302 and evolves according to the purchasing power parity (PPP). This scenario assumes a path for the Selic rate that ends 2022 at 13.75% p.a., falls to 11.00% in 2023 and to 8.00% in 2024. 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 2022, 2023, and 2024. In this scenario, Copom's inflation projections stand at 6.8% for 2022, 4.6% for 2023, and 2.7% for 2024. Inflation projections for administered prices are -1.3% for 2022, 8.4% for 2023, and 3.6% for 2024. The projections based on the reference scenario incorporate the tax measures recently approved. For the six-quarter-ahead horizon, which mitigates the calendar-year impact but incorporates the second-round effects of the tax measures that occur in 2022 and the first quarter of 2023, the 12-month inflation projection stands at 3.5%. The Committee judges that the uncertainty in its assumptions and projections is higher than usual.
8. The Committee evaluates that the global inflationary scenario is still challenging. Pressures stemming from both persistently high demand for goods, as well as supply shocks linked to the war in Ukraine, China's Covid-19 policy, and policies restricting trade in agricultural products in commodity-producing countries, might have long-term consequences and lead to more persistent inflationary pressures. However, the re-evaluation of future global demand has led to price declines of leading commodities as well as the prospects of reduced imbalance in the industrial goods market. Copom, even so, reiterates that some geopolitical and particular issues in these markets still deserve attention.
9. The Committee discussed the impacts of the global synchrony in the process of stimulus withdrawal. Copom noticed a more accelerated pace in the process of monetary policy adjustment in advanced economies, as well as the commitment stated in the communication of major central banks to reduce inflationary pressures. It was observed that this movement elevated the market volatility, unevenly impacting several assets and increasing risk aversion. In addition, given the persistence of the inflationary process in advanced economies and the consequent responses by several central banks, the Committee evaluates that the probability of alternative scenarios incorporating a sharper deceleration of global economic activity increased. The uncertainty about the energy scenario in Europe, the dynamics of sectors more sensitive to interest rates in the United States, and the prospects of a more gradual growth in China contribute to this scenario.
10. In the domestic scenario, Copom evaluates that temporary policies aimed to support income could provide stimulus to aggregate demand and the extension of these policies might increase the country’s risk premia and inflation expectations as they pressure aggregate demand and worsen the fiscal trajectory. The Committee reiterates that there are several channels by which fiscal policy may affect inflation, including its effect on activity, asset prices, and inflation expectations.
11. Labor market data, especially concerning the pace of job openings and the unemployment rate, surprised in the period and indicate a faster-than-anticipated narrowing of the estimate of the output gap. However, the Committee evaluates that economic slackness persists. Nevertheless, it is noteworthy that evaluations about the output gap, especially about the component related to the labor market, are always subject to uncertainty, notably in the current situation in which the economy is still normalizing after the pandemic and with remarkable heterogeneity across sectors in this process. Copom will continue monitoring and evaluating the output gap in the next releases. The Committee still considers that activity should decelerate in the coming quarters when the lagged impacts of monetary policy will be more strongly felt.
12. It 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; and (ii) an increase in the risk premium due to the uncertainty about the country's future fiscal framework and additional fiscal stimuli that support aggregate demand, partially incorporated in inflation expectations and asset prices. Among the downside risks, it should be noted (i) a possible reversion, even if partial, of the increase in the price of international commodities measured in local currency; and (ii) a greater deceleration of economic activity than projected. The Committee assesses that the possibility that fiscal policies that support aggregate demand become permanent heightens the upside risks of the inflationary scenario. On the other hand, the Committee notes that the rising risk of a greater global deceleration increases the downside risks to inflation. The Committee assesses that the still uncertain and volatile current scenario requires serenity when evaluating the prospective risks.
13. Copom discussed the conduct of monetary policy, considering the set of projections evaluated, as well as the balance of risks for inflation.
14. Following its usual governance, the relevant horizon for monetary policy now refers to the year 2023, and, to a lesser extent, 2024. However, at this meeting, the Committee noted that inflation projections for the years of 2022 and 2023 were heavily impacted by temporary tax measures across calendar years. Therefore, the Committee decided to emphasize the projections for 12-month inflation in the first quarter of 2024, which reflects the relevant horizon, smoothens out the primary effects from tax changes, but incorporates their second-round effects on the relevant inflation projections for monetary policy decisions.
15. The 12-month inflation projection for the first quarter of 2024 – which incorporates the secondary effects of the tax changes as well as the cumulative effects of keeping interest rates at a significantly contractionary level – is consistent with the strategy of inflation convergence to around the target over the relevant horizon. The Committee noted that inflation projection for 2024 is also around the target.
16. Copom opened the discussion by evaluating the adjustment cycle carried out up to this meeting. It was emphasized that the current monetary tightening cycle was quite intense and timely and that, due to the long and variable monetary policy lags, much of the expected contractionary effect and its impact on current inflation are still to be seen. These impacts should become clearer in the activity indicators for the second half of the year, but the Committee anticipates that measures to sustain aggregate demand, which will be implemented in the short term, may make it difficult a more precise evaluation about the stage of the economic cycle and the impacts of monetary policy.
17. The Committee noted that the short-term inflationary dynamics remains challenging, with increasing core inflation measures in an environment of surprises in current activity, and that its projections continued to deteriorate, even though the scenario is surrounded by uncertainty and volatility above the usual. It was emphasized that the rise in expectations and medium-term projections was concentrated in the inflation of administered prices, due to the temporary nature of some tax measures.
18. The Committee assessed, based on the projections used and on its balance of risks, that the strategy required to bring the projected inflation to around the target for the relevant horizon required that the monetary tightening cycle continued to move significantly further into contractionary territory, with an additional adjustment at this meeting and the maintenance of the interest rate in significantly contractionary territory for a sufficiently extended period.
19. Copom then debated the monetary policy options for this meeting. The Committee concluded that a further adjustment of 0.50 p.p. was appropriate in an environment of high uncertainty, despite the already significantly contractionary stage of monetary policy, which, considering its lags, should affect the economy more strongly as of the second half of 2022.
20. The Committee decided to signal that it will assess the need for a smaller residual adjustment at the next meeting, with the aim of bringing inflation to around the target in the relevant horizon. Moreover, given the persistence of recent shocks, the Committee will remain vigilant and will assess whether the prospect of maintaining the Selic rate by itself for a sufficiently long period will ensure such a convergence. This strategy was deemed more appropriate to ensure the convergence of inflation over the relevant horizon, as well as the anchoring of longer-term inflation expectations, while reflecting the already implemented monetary tightening, reinforcing the cautious monetary policy stance, and emphasizing the uncertainty of the scenario.
21. Taking into account the assessed scenarios, the balance of risks, and the broad array of available information, Copom unanimously decided to increase the Selic rate by 0.50 p.p. to 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 lesser extent, 2024. Without compromising its fundamental objective of ensuring price stability, this decision also implies smoothing of economic fluctuations and fosters full employment.
22. The Committee considers that, given its inflation projections and the risk of a deanchoring of long-term expectations, it is appropriate to continue advancing in the process of monetary tightening significantly into even more restrictive territory. The Committee emphasizes that it will persist in its strategy until the disinflation process and the expectation anchoring around its targets consolidate.
23. The Committee will evaluate the need for a residual adjustment, of lower magnitude, in its next meeting. The Copom emphasizes that it will remain vigilant and that future policy steps could be adjusted to ensure the convergence of inflation towards its targets. It also stresses that the uncertainty of the current scenario, both domestic and foreign ones, coupled with the advanced stage of the current monetary policy cycle, and its cumulative impacts yet to be observed, require additional caution in its actions.
24. 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 increase in the number of cases and the emergence of new virus strains are reverting previous mobility gains and should affect short-term activity. However, new fiscal stimulus in some developed countries and the rollout of COVID-19 immunization programs should promote a solid economic recovery in the medium term. Economic slack and communication of central banks of major economies suggest that monetary stimuli will last long, resulting in a favorable environment for emerging economies.
2. Turning to the Brazilian economy, indicators regarding growth at the end of last year have been better than expected, but they do not capture the effects of the recent increase in the number of COVID-19 cases. Prospectively, uncertainty about economic growth remains larger than usual, especially for the first quarter of this year, concurrently with the expected unwinding of the emergency transfer programs.
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 3.4%, 3.5%, and 3.25%, respectively.
5. The recent increase in commodities prices and its effects on food and fuel prices imply an increase in inflation forecasts for the next months. In spite of the stronger short-term inflationary pressure, the Committee maintains the diagnosis that the current shocks are temporary, although more persistent than expected. Hence, the Copom continues to closely monitor the evolution of inflation, in particular core inflation readings.
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$5.35/US$2, and evolving according to the purchase power parity (PPP), stand around 3.6% for 2021 and 3.4% for 2022. This scenario assumes a path for the Selic rate that ends 2021 at 3.25% p.a. and rises to 4.75% p.a. in 2022. In this scenario, inflation projections for administered prices are 5.1% for 2021 and 3.0% for 2022.
7. The Copom’s baseline scenario for inflation encompasses risk factors in both directions.
8. 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.
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 international environment, the Committee assessed that, on the one hand, the emergence of new variants of the virus and recent discussions about reflation in the USA are, respectively, new sources of risk for economic activity and asset prices in emerging countries. On the other hand, this risk is counterbalanced by the rollout of extensive immunization programs against the COVID-19, new fiscal stimuli in some developed countries and the communication of central banks of major economies that monetary stimuli will last long. The Committee judged that, for now, the result of this set of factors is a favorable 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 transfer programs, available data for the end of last year have been positively surprising. However, these data do not capture the effects of the recent increase in the number of COVID-19 cases. Prospectively, the unpredictability associated with the pandemic developments, and the necessary adjustment in government spending from 2021 on, increases the uncertainty about the economic recovery. The Committee considers that the risks associated with both the pandemic developments and the expected unwinding of the emergency transfer programs may lead to a domestic scenario characterized by more gradualism or even a temporary reversal of the economic recovery.
12. The Copom members debated on the level of economic slack. 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, face a greater reduction in demand. Prospectively, the evolution of these sectoral gaps will depend on the pandemic developments and on the adjustment in public spending. Some members of the Committee pointed out that labor market data on the formal sector suggest that the overall economic slack has reduced more rapidly than expected. Most members, however, felt that other labor market data did not support this conclusion.
13. Next, the Committee discussed the implementation of monetary policy. According to the forward guidance introduced since its 232nd meeting the Copom would not reduce the monetary stimulus as long as three conditions were met. The Copom has evaluated that two of these conditions still hold: the fiscal regime has not changed, and long-term inflation expectations remain anchored. However, the Committee judges that the third condition no longer holds, as inflation expectations, as well as inflation projections for its baseline scenario, are sufficiently close to the inflation target over the relevant horizon for monetary policy. As a consequence, the Committee decided to drop its forward guidance. Henceforth, monetary policy will follow the usual analysis of the balance of risks for the prospective inflation.
14. The Copom continued its analysis, considering not only the baseline scenario, but also the balance of risks for inflation. According to the baseline scenario, inflation projections are around the target in the relevant horizon. The Committee also considered that fiscal risks generate an upward bias in these projections, potentially justifying an increase in policy rates earlier than that assumed in its baseline scenario.
15. The Copom members discussed the impact of this asymmetry in the balance of risks in the appropriate degree of monetary stimulus. In particular, some members questioned whether it would still be appropriate to maintain an extraordinarily high degree of stimulus, given the normalization of the economic activity observed in recent months. Since the May 2020 Copom meeting, when the desired degree of monetary stimulus was characterized as "extraordinary", there has been a reversal on the disinflationary shock that occurred in the first months of the year, a reversal of the downward trend on inflation expectations and a decline on economic slack, bringing inflation projections on the baseline scenario closer to its target in the relevant horizon. Therefore, these members believe that the Copom should consider starting a process of partial normalization, reducing the "extraordinary" degree of monetary stimuli.
16. Lastly, the Committee concluded that despite some normalization in economic activity, uncertainty regarding the future dynamics of main economic variables remains above the usual. The next data release will be very informative about the evolution of the pandemic, economic activity, and fiscal policy. Thus, the benefits of waiting for these releases to decide on the next steps of monetary policy outweigh the costs. For this reason, at this time the Copom deemed it appropriate to maintain the extraordinarily high degree of monetary stimulus.
17. 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, mainly, 2022.
18. 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.
19. According to the forward guidance introduced in its 232nd meeting the Copom would not reduce the monetary stimulus as long as specified conditions were met. Based on new information, the Committee judges that those conditions no longer hold, as inflation expectations, as well as inflation projections for its baseline scenario, are sufficiently close to the inflation target over the relevant horizon for monetary policy. Therefore, the forward guidance no longer holds and, henceforth, monetary policy will follow the usual analysis of the balance of risks for the prospective inflation.
20. The Copom reiterates that the removal of the forward guidance does not mechanically imply interest rates increases, since, at this moment, uncertainties regarding the evolution of growth still prescribe an extraordinarily strong monetary stimulus.
21. 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 evolution of the Covid-19 Delta variant adds risk to the recovery of the world economy. The Committee considers that, in spite of the recent movements in the yield curves, there is still a relevant upward inflation risk in the central economies. Nevertheless, the environment for emerging economies remains favorable with the long-lasting monetary stimuli, with the fiscal programs, and with the reopening of the major economies.
2. Turning to the Brazilian economy, recent indicators continue evolving satisfactorily and do not call for 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 6.8%, 3.8%, and 3.25%, respectively.
5. Consumer inflation has been persistent. Recent indicators show a worse composition. It is noteworthy the surprise with the underlying services inflation and the continuing pressure on industrial goods, which cause core measures to rise. Furthermore, there is new pressure in volatile components, such as the possible additional increase in electricity fares and food prices, both due to adverse weather conditions. Altogether, these factors imply significant revisions in short-term forecasts.
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 5.152, and evolving according to the purchase power parity (PPP), stand around 6.5% for 2021, 3.5% for 2022 and 3.2% for 2023. This scenario assumes a path for the Selic rate that rises to 7.0% p.a. in 2021, remains at this level during 2022 and drops to 6.5% p.a. during 2023. In this scenario, inflation projections for administered prices are 10.0% for 2021 and 4.6% for 2022 and 2023. The energy flag is assumed to be neutral, remaining at "red level 1" in December each year.
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 commoditiesmeasured 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. Despite 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, the Committee assessed that the fiscal and monetary stimuli are promoting robust growth and that, henceforth, inflation dynamics in central and emerging economies should increasingly depend on demand channels. In this regard further discussions about the risk of a lasting inflation increase in the United States and the associated repricing of financial assets could turn the environment for emerging economies challenging.
11. The Copom members discussed the evolution of domestic economic activity in light of the available information and indicators. They considered that the latest available data continues to evolve positively, in line with growth forecasts. In the Committee’s view, the second half of the year should bring a robust recovery, as the effects of the vaccination are felt more broadly. The Committee noticed that the median of growth forecasts in the Focus survey is appreciably more optimistic than those of its baseline scenario and pondered whether the difficulties related to seasonal adjustments due to the pandemic shock would explain this divergence.
12. The Copom members then debated the level of economic slack. Although the economic slack as a whole is quickly returning to the late 2019 level, the Committee considered that the pandemic still produces heterogeneous effects on economic sectors and, in particular, on the labor market, with consequences for the recent and prospective dynamics of inflation.
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, the exchange rate at purchasing power parity, and commodity prices in USD stable in real terms, the inflation projections are aligned to the targets for 2022 and 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 one used in the baseline scenario.
14. Copom then evaluated different tightening paths for monetary policy. Considering the baseline scenario and the balance of risks, the Committee assessed that – should there be no changes in the inflation conditioning factors – subsequent uninterrupted interest rate increases are required up to a level above the neutral rate, to obtain projections around the inflation targets in the relevant horizon. Therefore, a tightening cycle of the policy rate to a level consistent with restrictive monetary policy has become appropriate. The Committee opted to communicate this decision, maintaining transparency about the monetary policy path implied in its projections, and reaffirming that this view will be systematically reassessed as changes in inflation determinants or in the balance of risks occur.
15. The Committee discussed potential explanations for the difference between its baseline scenario’s projections and the inflation expectations extracted from the Focus survey. First, expectations may incorporate different assumptions about the determinants of inflation, such as administered prices and economic growth, as well as contain different perceptions on risk or alternative scenarios. Second, the long sequence of shocks and one-way revisions of expectations may increase the perception of inflationary inertia. Finally, market participants may have different assumptions about the reaction function of monetary policy.
16. As a result, Copom evaluated that the recent worsening in inertial components of inflation, amid the reopening of the service sector, could cause a further deterioration in inflation expectations, raising the costs for its future convergence. The Committee felt that it should once again underscore its unequivocal commitment to the pursuit of its inflation targets over the relevant horizon for monetary policy, guided by its baseline scenario as well as its assessment of the balance of risks.
17. Finally, Copom concluded that a quicker adjustment of monetary policy is the most appropriate strategy at this time to assure the convergence of inflation to its targets for 2022 and 2023.
18. 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 5.25% 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. The adjustment also reflects the Committee’s perception that the recent deterioration of inertial components of inflation, in a moment of reopening of the service sector, could result in an additional deterioration of inflation expectations. The Committee understands that, at this moment, the strategy of a quicker monetary adjustment is the most appropriate to guarantee the anchoring of inflation expectations. Without compromising its fundamental objective of ensuring price stability, this decision also implies smoothing of economic fluctuations and fosters full employment.
19. At this moment, the Copom’s baseline scenario and the balance of risks indicate as appropriate a tightening cycle of the policy rate to a level above the neutral.
20. 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.
21. The following members of the Committee voted for this decision: Roberto Oliveira Campos Neto (Governor), 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. Since the previous meeting of the Monetary Policy Committee (Copom), the global environment has deteriorated. The episodes involving banks in the United States and Europe have increased the uncertainty and the volatility in markets and require monitoring. Major economies have emphasized the principle of separation of objectives and instruments in the conduct of monetary and macroprudential policies.
2. At the same time, recent data on global activity and inflation remain resilient and the process of monetary policy tightening in major economies continues to advance. The external environment continues to be marked by the prospect of global growth below potential, but the easing of the Covid policy in China, a milder winter in Europe and the possibility of a gradual US growth slowdown soften the ongoing global economic slowdown resulting from the tightening of financial conditions in the major economies. Conversely, the impact on financial conditions and consequently on global growth of the recent episodes involving the banking system in major economies is still uncertain but has a negative bias. Recent inflation readings point to some stabilization of core inflation in several countries at levels above their targets and reinforce the inertial nature of the current inflationary process. The inflationary environment remains challenging and the low degree of labor market slack in some economies, coupled with persistently high current inflation with a high degree of diffusion, suggests that inflationary pressures, particularly in the services sector, should last longer.
3. The process of normalization of monetary policy continues towards contractionary rates synchronized across countries. In several emerging economies, tightening cycles come to a halt or suggest they are nearing an end. In any case, most monetary authorities signal a prolonged period of high interest rates is necessary to fight inflationary pressures, which calls for greater caution in the conduct of economic policies also by emerging countries.
4. Turning to the Brazilian economy, the set of indicators released since the previous meeting still corroborates the scenario of slowdown in the growth expected by the Committee. A moderation is observed in the coincident indicators of activity and the credit market has also shown deceleration at the margin. The labor market, which surprised positively throughout 2022, continues to show signs of moderation, with relative stability in the unemployment rate, stemming from declines in the employed population and in the workforce.
5. 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. Inflation expectations for 2023 and 2024 collected by the Focus survey are around 6.0% and 4.1%, respectively.
6. In the reference scenario, the interest rate path is extracted from the Focus survey, and the exchange rate starts at USD/BRL 5.252 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 5.8% for 2023 and 3.6% for 2024. Inflation projections for administered prices are 10.2% for 2023 and 5.3% for 2024. The Committee decided again to emphasize the six-quarter horizon ahead. On this horizon, which refers to the third quarter of 2024, the 12-month inflation projection stands at 3.8%. 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 over the entire relevant horizon. In this scenario, inflation projections stand at 5.7% for 2023, 3.3% for the third quarter of 2024, and 3.0% for 2024.
8. The Committee again assessed the possibility of incorporating some increase in its estimate for the neutral interest rate, towards the movement observed in expectations for longer terms extracted from the Focus survey. The real neutral interest rate is the rate in which, in the absence of impact from other factors, the inflation rate remains stable, and the output grows according to its potential, reflecting productivity gains and changes in the structural fundamentals of the economy. At this point, the Committee decided to keep the neutral interest rate at 4% but evaluated alternative scenarios and identified that the impacts of an increase in the neutral rate on its projections grow over time and become more relevant as of the second half of 2024.
9. In assessing the factors that could lead to unfold an alternative scenario characterized by a higher neutral interest rate, emphasis was placed on the possible adoption of expansionary parafiscal policies, which can increase the neutral rate and reduce the power of monetary policy, as previously remarked by the Committee.
10. The Committee continues to assess that the global disinflation process, especially regarding underlying inflation indicators, is challenging and may be slower than what is usually observed, as inflation is widespread in the services segment. In this context, the reduction of inflationary pressures continues to require the commitment and determination of central banks with the control of inflation through a more prolonged tightening of financial conditions. Such determination, with a likely impact upon asset prices in the short term, contributes to a more credible and lasting global disinflationary process.
11. Since the previous Copom meeting, some regional banks were liquidated in the US and two large Swiss banks were merged, raising concerns about the banking system in the major economies. The Committee will continue to closely monitor this situation, analyzing possible contagion channels, but assesses that the direct impact on the domestic financial system and other emerging countries is, so far, limited, with no changes in the stability or efficiency of those financial systems.
12. The scenario, therefore, looks even more challenging for the conduct of monetary policy, with increased risks both around the inflationary scenario and in relation to financial stability. On the one hand, there are the episodes involving the banking sector and the consequent need to provide liquidity. On the other hand, global growth and inflation data remain resilient, requiring commitment and determination from the monetary authorities. The Committee believes that the best contribution of monetary policy continues to be in combating inflationary pressures and smoothing out economic fluctuations. In addition, some members emphasized that they do not see a dilemma in the conduct of monetary policy between its objective of inflation control and the objective of financial stability. The Committee stressed how the two objectives have specific instruments.
13. Brazilian activity data continue to indicate a more moderate pace of growth at the margin, and employment data suggest moderation. It was pointed out that after a period of strong recovery in the last two years, a process of deceleration of growth has begun in the durable goods sector, which had been particularly buoyant in the pandemic, and which is more sensitive to interest rate policy. The deceleration spread to the non-durable goods sector and, subsequently, to the services sector, although in a milder way. Copom continues to evaluate that the economic slowdown underway is necessary to guarantee the convergence of inflation to its targets, particularly after a prolonged period of inflation above the target. Finally, it was noted that the economic growth outlook has not changed significantly in the recent period.
14. As expected, given the greater lag in relation to the economic cycle, only recently has the labor market shown evidence of a moderate slowdown, compatible with the Committee's expectation of a moderation in the pace of economic activity. Some members have observed that there is a movement towards a partial recomposition of recent losses in real wages. This movement is expected and has been accompanied by a deceleration in nominal gains, which is expected to intensify ahead.
15. The Committee believes that the disinflation dynamics continues to be characterized by a process with two distinct stages. In the first stage, already completed, there is a greater speed of disinflation, with a greater effect on administered prices and an indirect effect on market prices through less inertia. In the second stage, which is currently observed, the speed of disinflation is slower and core inflation – which is more affected by the aggregate demand and the interest rate policy – is reduced at a slower pace, responding to the output gap and inflation expectations. It is thus observed an inflationary dynamic driven by excess demand initially in goods, and which has currently shifted to the services sector, and which therefore requires moderation of economic activity for monetary policy channels to act. Such a process demands serenity and patience in the conduct of monetary policy for the convergence of inflation to its targets.
16. The further deterioration of inflation expectations in the Focus survey, especially at longer maturities, was much debated. It has been pointed out that the behavior of expectations is a fundamental aspect of the inflationary process since it affects the setting of present and future prices and wages. As higher inflation is projected ahead, companies and workers start to incorporate such future inflation in the adjustments of prices and wages. Thus, there is a greater rise in prices in the current period, and the inflationary process is fed by these expectations. It was also highlighted that the anchoring of expectations is a key factor for price stability. Therefore, and following the best international practice, the Committee incorporates expectations in its decision-making process, analyzing and including them as one of the factors affecting its inflation projections.
17. Additional tightening of credit conditions was observed in some modalities. Some members believe that this movement is in line with what is expected, considering the interest rates rise undertaken until the middle of the second half of 2022. For these members, an increase in delinquency and a slowdown in credit granting should still be expected, but in line with what was observed in previous monetary policy tightening cycles. Other members, in contrast, assess that in the most recent period the tightening of credit granting was more intense than expected, but focused on some specific markets. The Committee believes that the BCB has the appropriate and necessary liquidity instruments linked to macroprudential policy to address localized relevant frictions in the system, should they occur. Furthermore, it reinforced that monetary policy is more appropriate to act in a counter-cyclical manner on the aggregate demand.
18. The Committee also discussed the impacts of the fiscal scenario on inflation. In this regard, the Copom emphasized again that the net effect of the fiscal policy conduct on inflation is highly dependent on the current macroeconomic and financial conditions. Copom evaluated that the Ministry of Finance's commitment to the implementation of the fiscal package, which is already identified in fiscal statistics and the reinstatement of fuel taxes, smooths the fiscal stimuli on demand, reducing the upside risk on inflation in the short-term. Furthermore, the Committee will continue monitoring the elaboration, discussion, and implementation of the fiscal framework that will be presented by the Government and voted by the National Congress. Copom emphasized that there is no mechanical relationship between the convergence of inflation and the presentation of the fiscal framework, since the former remains conditional on the reaction of inflation expectations, the public debt projections, and the asset prices. Nevertheless, the Committee stresses that the materialization of a scenario with a solid and credible fiscal framework might result in a more benign disinflationary process through its effect on the expectations channel, by reducing inflation expectations, the economic uncertainty, and the risk premium on domestic assets.
19. 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 uncertainty about the fiscal framework and its impacts on the expected path of the public debt; and (iii) a larger or more persistent deanchoring of long-term inflation expectations. 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, particularly due to adverse conditions in the global financial system; and (iii) a slowdown in domestic credit granting larger than what would be compatible with the current stance of monetary policy.
20. On the one hand, the recent reinstatement of fuel taxes has reduced the uncertainty of the fiscal results in the short term. On the other hand, the current scenario, marked by high volatility in financial markets and deanchored long-term inflation expectations from the targets, requires further attention when conducting monetary policy. The Committee judges that the deanchoring of long-term inflation expectations raises the cost of the disinflation that is needed to reach the targets established by the National Monetary Council. In this scenario, Copom reaffirms its commitment to set monetary policy to meet the targets.
21. Copom discussed the conduct of monetary policy, considering the set of projections evaluated, as well as the balance of risks for inflation.
22. The Committee decided again to emphasize the six-quarter-ahead horizon in its projections but anticipates that for the next quarter the Committee will again use the usual calendar-year horizon, since the six-quarter horizon ahead will coincide with the 2024 calendar year, so there will be no more direct effect from the tax changes on the usual horizon.
23. Copom started the debate by evaluating whether the previously outlined strategy of stable interest rates would be enough to ensure the convergence of inflation towards to its targets. To this end, the Committee has continued its process of analyzing the main determinants of the inflation path and how they have behaved in the most recent period. No significant change occurred in the prospective scenario for the output gap, but a deeper debate took place about the effects of a possible greater-than-projected credit tightening on economic activity. As for services inflation and inflation cores, increased resilience and lower speed are observed in the recent releases, in line with the non-linear process already anticipated by Copom. In addition, inflation expectations followed a deanchoring process, partially related to the questioning about a likely change in future inflation targets. The Committee evaluates that the credibility of pursued targets is a fundamental component of the inflation targeting regime and contributes to the proper functioning of the expectations channel, making the disinflation quicker and less costly. In this regard, decisions that induce a reanchoring of expectations would reduce the disinflationary cost and uncertainties associated with this process.
24. The changes in the Copom’s inflation projections have been primarily affected by changes in expectations, as in its previous meeting. Finally, in the balance of risks, most of the debate was, on the one hand, between a greater deanchoring of inflation expectations in longer terms and, on the other hand, a more abrupt reduction in the domestic or global credit granting affecting the economic activity. Copom emphasized that the monetary policy conduct, at this moment, requires serenity and patience to incorporate the inherent delays in the inflation control through interest rates and, therefore, to reach the goals in the relevant monetary policy horizon.
25. Lastly, the Committee reinforced that the harmony between monetary and fiscal policies reduces distortions and uncertainty, facilitates the disinflationary process, and fosters full employment over time. In this regard, the Committee reinforces the importance that public and private credit granting remains at competitive interest rates sensitive to the Selic.
26. Considering the assessed scenarios, the balance of risks, and the broad array of available information, the Copom decided to maintain the Selic rate at 13.75% p.a. The Committee judges that this decision 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.
27. Taking into account the uncertainty of the scenarios, the Committee remains vigilant, assessing if the strategy of maintaining the Selic rate for a long period 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 additional deterioration, especially at longer horizons. 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.
28. 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.