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Brazil Monetary Policy June 2023

Brazil: COPOM meets expectations and stays put for seventh consecutive meeting in June

At its 20–21 June meeting, the Monetary Policy Committee (COPOM) of Brazil’s Central Bank (BCB) decided to once again hold fire and maintain the benchmark SELIC rate at 13.75%. The unanimous decision, which met market expectations, was the seventh consecutive hold since September 2022.

The decision to stand pat was driven by the continued receding of headline inflation through May. Regarding inflation expectations, the COPOM’s baseline headline inflation projection was revised down to 5.0% in 2023 and 3.4% in 2024 from 5.8% and 3.6% in 2023 and 2024, respectively. That said, the Bank expects inflation to increase in H2 2023. With regard to activity, the Bank noted that despite an unexpectedly strong GDP performance in Q1—thanks to a robust agricultural sector—and 2023 GDP growth forecasts having been updated, higher-frequency indicators indicate an economic slowdown. Meanwhile, the external environment remains volatile, and uncertainty around the banking sector turmoil abroad persists.

In other news, at its 29 June meeting, the National Monetary Council voted to change the inflation-targeting regime from 2026; under the new rules, the 2026 inflation target will be 3.0% and the target will be adjusted less often.

While the Bank did not provide any hints regarding future policy moves, the tone of the communiqué was largely unchanged. The Bank reiterated that risks to the inflation outlook remained in both directions; it affirmed it would persevere until inflation expectations for 2023 are anchored around the 3.25% target.

Meanwhile, all of our panelists see the benchmark SELIC rate being cut before the end of 2023.

The next monetary policy meeting is scheduled for 1–2 August.

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