Statement from Brazil’s central bank following policy meeting
BRASILIA, Nov 4 (Reuters) - Following is the statement from Brazil’s central bank following its policy meeting:
The global environment became more adverse due to the persistence of the armed conflicts in the Middle East, with upward pressure on oil and its derived products' prices, as well as the tighter monetary policy in advanced economies. This scenario requires caution from emerging market economies amid heightened volatility of asset and commodity prices.
Regarding the domestic scenario, the set of indicators released since the last meeting points to a more pronounced moderation of economic activity, particularly in more cyclical sectors. The labor market remains resilient, albeit showing slowdown signs at the margin. In recent releases, headline inflation and the average underlying inflation measures accelerated, placed above the upper limit of the target tolerance interval.
Inflation expectations for 2026 and 2027 collected by the Focus survey moved further away from the target since the last meeting, standing at 5.2% and 4.8%, respectively. Copom's inflation projection for the second quarter of 2028, currently the relevant horizon for monetary policy, increased to 3.5% in the reference scenario (Table 1), incorporating the supply shocks that have materialized since the last meeting. The Committee reiterates that this projection is based on the Selic trajectory from the Focus survey.
The risks to inflation, both to the upside and to the downside, remain higher than usual, with an upward asymmetry. Among the upside risks for the inflation outlook and inflation expectations, it should be emphasized (i) a more prolonged period of deanchoring of inflation expectations, with longer horizons incorporating potential second-round effects stemming from supply shocks in oil and its derived products, and to climate effects upon agricultural productivity and energy costs; (ii) a stronger-than-expected resilience of services inflation due to a positive output gap; (iii) a conjunction of internal and external economic policies with a stronger-than-expected inflationary impact, for example, through a persistently more depreciated currency; and (iv) stimuli to aggregate demand, particularly its consumption component, resulting in economic activity growth above potential output, weakening some of the usual transmission channels of monetary policy. Among the downside risks, it should be noted (i) a greater-than-projected deceleration of domestic economic activity, impacting the inflation scenario; (ii) a steeper global slowdown stemming from the trade and oil shocks, as well as tighter financial conditions, in a scenario of heightened uncertainty; and (iii) a reduction in commodity prices with disinflationary effects.
The Committee continues to monitor how developments of domestic fiscal policy impact monetary policy and financial assets, reinforcing its cautious stance in a scenario of heightened uncertainty. Recent indicators of economic activity remain consistent with a trajectory of deceleration for the full year of 2026. The Committee is closely monitoring the deanchoring of longer-term inflation expectations, insofar as it contributes to price-setting behavior and increases the cost of disinflation.
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. Without compromising its fundamental objective of ensuring price stability, this decision also implies smoothing economic fluctuations and fostering full employment.
The current scenario, marked by a substantially contractionary Selic rate, a significant increase in uncertainty surrounding the reference scenario, higher inflation expectations, and a more pronounced deceleration of domestic economic activity, presents a challenging scenario for monetary policy, requiring serenity and cautiousness in its conduct. The Committee will continue to monitor developments in the scenario in order to keep monetary policy adequately restrictive to ensure inflation convergence to the target.
The following members of the Committee voted for this decision: Gabriel Muricca Galípolo (Governor), Ailton de Aquino Santos, Gilneu Francisco Astolfi Vivan, Izabela Moreira Correa, Nilton José Schneider David, Paulo Picchetti, and Rodrigo Alves Teixeira.
Table 1
Inflation projections in the reference scenario
Year-over-year IPCA change (%)
In the reference scenario, the interest rate path is extracted from the Focus survey, and the exchange rate starts at USD/BRL 5.20 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. Moreover, the energy tariff flag is assumed to be “green" in December of the years 2026 and 2027. The value for the exchange rate was obtained according to the usual procedure.
Note: This press release represents Copom's best effort to provide an English version of its policy statement. In case of any inconsistency, the original version in Portuguese prevails.
(Reporting by Marcela Ayres) ((Contact info: marcela.ayres@thomsonreuters.com ; +55 11 5047-2444))