The Copom’s Decision and Definition of the Inflation Target
At its last meeting, the COPOM kept the Selic rate at 13.75%, and besides making it clear that “The current context, characterized by a stage in which the disinflationary process tends to be slower and in an environment of de-anchored inflation expectations continues to require caution and parsimony,” affirmed that “it will persist until the disinflationary process consolidates and inflation expectations anchor around its targets.” Based on these two passages, it would be tempting to conclude that the start of the easing cycle is still distant.
However, later in the communiqué, the Committee stated 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.” In these respects, analysis of the data indicates that the start of the easing cycle is near. In this report, after a quick review of recent trends, we examine two points: (i) the setting of the inflation target at the next meeting of the National Monetary Council (CMN); and (ii) the interest rate at the end of the cycle, which is constrained by fiscal policy and is thus outside the Central Bank’s control.
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