1. The global environment remains adverse and volatile, marked by prospects of below-potential 2023 global growth. The tightening of financial conditions in major economies, difficulties in energy supply to Europe, and a challenging scenario for growth in China, partly due to the Covid-19 policy in the country, reinforce a slowing global growth outlook in the coming quarters.
2. The inflationary environment remains challenging. There is a normalization in supply chains and an accommodation in the prices of major commodities in the recent period, which should lead to a moderation in global goods-related inflationary pressures. In turn, the low level of labor market slack in some economies, coupled with high current inflation and a high degree of 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 contractionary rates synchronized across countries, tightening financial conditions, impacting economic growth expectations, and raising the risk of abrupt repricing movements in the markets. The Committee noted a stronger market sensitivity of financial assets to fiscal fundamentals, including in advanced economies, and lower liquidity in several markets. This environment calls for greater caution in the conduct of economic policies also by emerging economies.
4. Turning to the Brazilian economy, the set of indicators released since the previous meeting corroborates the scenario of slowdown in the growth expected by the Committee. The release of the third quarter GDP figures suggested a more moderate growth rate than in previous quarters, despite expansion in all components of demand. Similarly, the labor market continues to recover, but at a slower pace than in previous months.
5. Despite the recent reduction, especially on items which are more volatile and affected by tax measures, consumer inflation remains high. Items related to industrial goods, reflecting the more intense decrease in producer prices and the reduction of pressures in global value chains, also showed deceleration, albeit still slow. 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 2022, 2023, and 2024 collected by the Focus survey are around 5.9%, 5.1%, and 3.5%, 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 “green” in December 2022 and “yellow” in December 2023 and 2024. In this scenario, Copom’s inflation projections stand at 6.0% for 2022, 5.0% for 2023, and 3.0% for 2024. Inflation projections for administered prices are -3.6% for 2022, 9.1% for 2023, and 4.2% for 2024. The Committee decided again to emphasize the six-quarter-ahead horizon, which reflects the relevant horizon, mitigates the primary effects from the tax changes but incorporates their second-round effects. On this horizon, which refers to the second quarter of 2024, the 12-month inflation projection stands at 3.3%. The Committee judges that the uncertainty in its assumptions and projections is higher than usual.
7. The Committee discussed the speed of the global disinflation process. On the one hand, the relaxation of pressures on global production chains, as well as the recent drop in commodity prices, indicate that the movement should continue in the short term, especially in the industrial goods, energy, and food segments. On the other hand, the Committee discussed that, given the spread of inflationary pressures to the services segment, which has a more inertial nature, in an environment of tight labor markets in several countries, the disinflation process should be non-linear and slower than that observed in recent episodes.
8. Thus, 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 longer tightening of financial conditions, with interest 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.
9. The Committee discussed two recent facts while analyzing the international markets. Firstly, it continues to assess that markets are more sensitive to developments that affect fiscal fundamentals, due to the combination of higher interest rates and sovereign debt at historically high levels. In addition, the Committee discussed the lower liquidity present in sovereign bond markets, possibly due to greater uncertainty in the interest rate dynamics, the reversal of long-term asset purchase policies and regulatory changes. These issues require monitoring and may also impact assets from emerging economies more strongly.
10. Data on economic activity in Brazil continues to indicate a more moderate pace of marginal growth. The release of the third quarter GDP figures indicates a reduction in the pace of growth, especially in some of the more cyclical components. Nevertheless, growth was observed in all demand components and, in the supply side, growth in industry and services. Moreover, labor market data also indicate a reduction in the pace of job openings, but still with positive marginal net hirings. The set of released data, including the drop in confidence indicators and the reduction in credit granting, 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.
11. The inflationary outlook was then discussed, based on the more recent information. Some members noted the benign movement of commodities in BRL, highlighting additional downside risks ahead. Other members emphasized the volatile nature of these prices in an environment of pressured inventories. Finally, all members evaluated that current inflation did not surprise significantly in relation to expectations or substantially changed the understanding about future inflation dynamics. Moreover, they emphasized that disinflation in services and core inflation – components with greater inertia – will require increased attention and perseverance in the conduct of monetary policy.
12. The Committee discussed extensively the impacts of different fiscal scenarios on inflation. In its analysis, the Committee reiterated the different channels through which fiscal policy can affect inflation not only via the primary effects of aggregated demand but also via asset prices, the degree of economic uncertainty, inflation expectations, and neutral interest rate. The Committee evaluated that changes in parafiscal policies or the reversal of structural reforms that lead to a less efficient allocation of resources might reduce the power of monetary policy. In the different exercises analyzed, it was evaluated that the final effect, either on inflation or on activity, will depend on both the combination and the magnitude of the fiscal and parafiscal policies. Furthermore, it was highlighted that the existence of economic slack and the confidence in the debt sustainability are determining factors for an expansionary fiscal policy to achieve the aimed impacts on the economic activity. In an environment of a narrow output gap, the impact of significant fiscal stimulus on the path of inflation tends to outweigh the aimed impacts on economic activity.
13. The Committee believes that there is still a lot of uncertainty about the prospective fiscal scenario and that the moment requires caution in risk assessment. The Committee reiterates that it will continue to monitor future fiscal policy developments and their potential impacts on prospective inflation dynamics.
14. 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; (ii) the heightened uncertainty about the country's future fiscal framework and additional 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. The current scenario, particularly uncertain on the fiscal side, requires serenity when evaluating risks. The Committee will closely monitor future developments in fiscal policy and, in particular, its effects on asset prices and inflation expectations, with potential impacts on the dynamics of future inflation.
15. Copom discussed the conduct of monetary policy, considering the set of projections evaluated, as well as the balance of risks for inflation.
16. The 12-month inflation projection for the second quarter of 2024, in the scenario using the interest rate trajectory extracted from the Focus Survey, remains consistent with the strategy of inflation convergence to around the target over the relevant horizon. The Committee decided again to emphasize the six-quarter-ahead horizon for its projections, and stresses that this decision is conditional on the temporary nature of the taxes. Moreover, the Committee continues to consider that inflation projection for 2024 is also around the target. This assessment reflects the lower-than-normal visibility of the forward-looking scenario, which increases the uncertainty of the point projections communicated by the Committee over longer horizons.
17. Copom anticipates that, if the alternative scenario of maintaining tax exemption on fuels in 2023 materializes, it will again emphasize usual horizons that include the first quarter of 2023. However, it assesses that there will be no relevant impacts on the conduct of monetary policy since the primary effects of such measures are already being disregarded.
18. Copom began by discussing the evolution of the broad array of data monitored, the projections, inflation expectations, output gap, and the balance of risks. Copom's inflation projections showed a slight increase over the relevant horizon due to both an increase in the projection for the inflation of market prices in shorter terms and a revision of the projection for the inflation of administered prices over longer terms. Compared to the previous meeting, the median inflation expectations from the Focus Survey rose slightly for 2023 and remained stable for 2024. However, regarding 2024, the Committee noted with concern a rise in the average expectations. The uncertainty about future fiscal dynamics, and its consequences on inflation dynamics, was discussed, and the uncertain environment was deemed to require serenity in assessing these risks. Services inflation showed some moderation but remains at high levels, and the Committee believes that the disinflation process of this component will become clearer over time. Finally, regarding the output gap, the Committee observed a reduction in the degree of economic slack in the third quarter, due to data revisions and the release of domestic variables, but believes that the gap should widen over the relevant horizon.
19. 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 members assessed that, given the data released, projections, inflation expectations, the balance of risks, and the lags of the 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 sufficiently long period will be enough to ensure the convergence of inflation.
20. The Committee emphasizes that it will persist until the disinflationary process consolidates and inflation expectations anchor around its targets. The Committee emphasizes that it will not hesitate to resume the tightening cycle if the disinflationary process does not proceed as expected.
21. 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 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 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 will remain vigilant, assessing if the strategy of maintaining the Selic rate for a sufficiently 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. 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.
23. 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, Paulo Sérgio Neves de Souza and Renato Dias de Brito Gomes.


1. Regarding the global outlook, the Covid-19 pandemic keeps causing the largest economic downturn since the Great Depression. Against this backdrop, despite some promising signs of recovery in major economies, and some moderation in financial assets volatility, the environment for emerging economies remains challenging.
2. Turning to the Brazilian economic activity, recent indicators suggest a partial recovery. Sectors more directly affected by social distancing measures remain depressed despite the offsetting effects of the government 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 winding up of the emergency transfer 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 1.6%, 3.0%, and 3.5%, respectively.
5. Short-term inflation seems to be cooling after July’s sharp increase. Relative to the previous Copom Meeting, short-term projections remain relatively stable. Revisions to some components of service price inflation have offset the impact of the depreciation of the Brazilian real and the rise in commodity prices.
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$5.20/US$2 stand around 1.9% for 2020, 3.0% for 2021 and 3.4% for 2022. This scenario assumes a path for the Selic rate that ends 2020 at 2.0% p.a., rises to 3.0% p.a. in 2021 and 5.0% p.a. in 2022. In this scenario, inflation projections for administered prices are 1.6% for 2020, 3.4% for 2021, and 3.9% for 2022.
7. The scenario with constant interest rate at 2.25% p.a. and constant exchange rate at R$5.20/US$ yields inflation projections around 1.9% for 2020, 3.0% for 2021 and 3.7% for 2022. In this scenario, inflation projections for administered prices are 1.6% for 2020, 3.4% for 2021, and 3.9% for 2022.
8. The Committee emphasizes that risks to its baseline scenario remain in both directions.
9. On the one hand, economic slack may continue to produce a lower-than-expected prospective inflation trajectory. 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 permanently aggravate the fiscal path 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 economy, the data already available for the 2020Q2 GDP did not surprise, but it showed that the depth of the current economic downturn is only comparable to that of the Great Depression. There are some promising signs of recovery which, however, has shown to be incomplete. The strong recovery in consumption was not followed by the services sector. The Committee pondered that the main restriction to a full recovery in the major economies is the evolution of the pandemic itself, and the possibility of a second wave of the virus is a major risk.
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 the economic activity. Government transfer programs have allowed for a relatively strong resumption of durable goods consumption and even of investment. However, several service sector activities, especially those most directly affected by social distancing measures, remain quite 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 the 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 assessed the appropriate degree of stimulus for the current environment. First, it analyzed whether the existence of an asymmetry in its balance of risks, mainly related to fiscal issues and the continuation of reforms in the Brazilian economy, would be a sufficient reason to maintain the stimulus at its current level. Given its perception of economic slack and prospective inflation, the Committee considered that, although asymmetric, its projections for inflation are below the target for the relevant horizon for monetary policy. Therefore, in line with its inflation targeting mandate, the Committee concluded that it would be appropriate to increase residually the degree of monetary stimulus.
15. The Committee then resumed 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.
16. 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 basic 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 considers that the financial system is resilient to the credit risk arising from the current pandemic. However, when analyzing the financial system in a broad way – considering its various industries, markets, products and financial services – the Committee reflected that an unprecedentedly low interest rate environment may generate increased asset price 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.
17. In order to provide the monetary stimulus deemed adequate to meet the inflation target, but maintaining the necessary caution for prudential reasons, the Copom considered the use of a forward guidance as an additional monetary policy tool. The Copom discussed the limitations on the use of this instrument in emerging countries. Relative to developed countries, emerging countries are more susceptible to contagion from external crises and have greater vulnerabilities in their economic fundamentals. Therefore, due this greater unpredictability and volatility, the use of such an instrument becomes more challenging. The Committee concluded that despite those limitations, the forward guidance would be the policy strategy with the best cost-benefit ratio. The forward guidance transmits the Committee's vision on its future actions and tends to adjust the expectations reflected on the intermediary part of the yield curve.
18. 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.
19. 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.
20. Taking into account the baseline scenario, the balance of risks, and the broad array of available information, the Copom unanimously decided to lower the Selic rate by 0.25 percentage point to 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. Despite the asymmetry on its balance of risks, the Copom does not foresee reductions in 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.