Monetary Policy, Inflation and Effects on Economic Activity

BRAZIL ECONOMICS - Report 31 Oct 2022 by Affonso Pastore, Cristina Pinotti, Paula Magalhães and Diego Brandao

At its last meeting, the COPOM kept the SELIC rate at 13.75% a year. In the communiqué about this decision, the committee members repeated the alerts expressed after the meeting in September, regarding the uncertainties over the fiscal framework, the high likelihood that the output gap was narrower than considered in the projections, and the consequences of a global economy beset by persistent inflation.

With monetary policy maintained in restrictive territory since the last quarter of 2021, and with the global economic slowdown, inflation should decline steadily in 2023, but the projections indicate that the first cuts in the basic interest rate will only come in the second half of the year. The cost of this adjustment is weaker economic growth, which so far has been minimized by the increased public spending, but is now showing signs of starting.

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