In case the forward guidance ceases to apply, monetary policy will follow the inflation target framework, based on the analysis of prospective inflation and its balance of risks. Fiscal constraints are forcing the government to end monthly stipends that boosted demand during the pandemic. Consumer prices in Latin America’s largest economy have risen faster than investor expectations for three months amid unrelenting jumps in food and transportation costs. A scenario of inflation expectations converging to the target suggests that the conditions for maintaining the forward guidance may soon no longer apply, which does not mechanically imply interest rates increases, since economic conditions still prescribe an extraordinarily strong monetary stimulus. and the forward guidance introduced in the 232nd meeting. The bank is active in promoting financial inclusion policy and is a leading member of … In Brazil the central bank is the highest monetary authority and can operate fully autonomously, contrary to what is possible in most other countries. Brazil's economy has contracted in the last three quarters, with gross domestic product down 3.9 percent year-on-year in the third quarter after a 10.9 percent drop in the second quarter and a 0.3 percent fall in the first quarter. And in the event the forward guidances no longer applies, Copom said its monetary policy will still follow the inflation-targeting framework. “There is an emphasis on projections and expectations for 2022.”. The SELIC rate is used as a benchmark for interest rates in the Brazilian economy. “There is certainly preparation for an increase in interest rates,” said Solange Srour, chief economist at Credit Suisse Brasil. The FX rate has weakened, commodity prices and Brazilian stocks have fallen, and nominal yields have risen in recent weeks. Powered by. Since adopting the forward guidance, the previous declining trend in inflation expectations was reversed but Copom said even if the conditions for the forward guidance may soon no longer apply, this, "does not mechanically imply interest rates increases, since economic conditions still prescribe an extraordinarily strong monetary stimulus.". The Copom judges that, since adoption of the forward guidance, inflation expectations reversed their declining trend relative to the target for the relevant horizon. Today the real was trading at 5.17 to the U.S. dollar, up 14 percent since a record low of around 5.89 on May 14 but still down almost 23 percent since the start of 2020. The Committee deems as adequate the current level of unusually strong monetary stimulus, which is being provided by the maintenance of the policy rate at 2.00% p.a. Read more: Brazil Outlook Dims With GDP Miss, End to ‘Colossal’ Spending, “What surprised me was the central bank’s timing,” said Gustavo Arruda, chief economist at BNP Paribas. Copom said its own projections also assumes the Selic rate would rise to 3.0 percent in 2021, then 4.50 percent in 2022. At the same time, they added, various measures of underlying inflation are compatible with meeting target over a relevant horizon for monetary policy. Copom said these conditions for the forward guidance are still being met and despite a higher-than-expected rise in inflation, it still considers this rise as temporary but is monitoring the situation closely. Copom's view of inflation mirrors last month's statement by its president, Roberto Campos Neto, who said policymakers should look through the temporary factors pushing up prices, such as a spike in food prices, a weak exchange rate and demand fueled by the government's emergency income transfers. 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