Central Bank considered raising rates faster, minutes show
In a meeting that dealt mainly with the impact that fiscal risks may have on the Selic, the Central Bank’s Monetary Policy Committee (Copom) last week discussed "scenarios with adjustments" greater than 150 basis points for Brazil’s benchmark interest rate. But the policymakers considered that "at this moment" the maintenance of the pace is enough to bring inflation to the target next year, even if the situation requires a trajectory of Selic increases "significantly more contractionary" than the path of the committee’s baseline scenario.This is what the latest Copom minutes, released Wednesday and referring to last week’s meeting, show. On that occasion, the policymakers raised the Selic to 7.75% per year from 6.25% and signaled a new increase of 150 bp for the last meeting in 2021."The Committee also considered scenarios with adjustments" greater than 150 basis points, the policymakers said in the minutes when discussing simulations with several paths for the basic interest rate and "under different alternative scenarios.""The prevailing view, however, was that monetary policy tightening paths with 150 bp steps, considering different ending rates, are consistent with inflation converging to the target in 2022," it said.Currently, to steer the Selic rate, the Copom targets with equal weight the years 2022 and 2023 - for which the inflation targets are 3.5% and 3.25%, respectively. The inflation projections of the Copom’s baseline scenario for each of these years are 4.1% and 3.1%. These projections were described in the minutes, respectively, as "above the target" and "around the target."According to the Central Bank, this convergence of the path of prices to the target next year already takes into account "the current asymmetry of the balance of risks" caused by fiscal risks. In the balance of risks, the monetary authority makes a more subjective analysis of the factors that can impact inflation. The "upward" asymmetry that the Copom sees means that, in its view, there are more chances of inflation being above than below expectations."This upside bias is now larger than previously considered," the minutes say. The policymakers concluded that "the appropriate degree of monetary tightening," measured by the trajectory of Selic increase, "is significantly more contractionary than that used in the baseline scenario," taking even more...
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