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Copom maintains Selic rate at 6.50% pa

At its 223rd meeting, the Copom unanimously decided to maintain the Selic rate at 6.50% pa

The update of the Copom basic scenario can be described with the following observations:

Recent indicators of economic activity indicate an interruption in the recovery process of the Brazilian economy in recent quarters. The Copom scenario contemplates a resumption of this process in a gradual manner;

The external scenario is less adverse, due to changes in the outlook for monetary policy in the main economies. However, the risks associated with a slowdown in the global economy remain;

The Committee assesses that a number of underlying inflation measures are at appropriate levels, including those components most sensitive to the economic cycle and monetary policy;

The inflation expectations for 2019, 2020 and 2021 calculated by Focus research are around 3.8%, 4.0% and 3.75%, respectively; and

In the scenario with trajectories for the interest and exchange rates extracted from the Focus survey, Copom projections are around 3.6% for 2019 and 3.9% for 2020. This scenario assumes interest trajectory ending 2019 in 5.75% pa and it rises to 6.50% pa in 2020. It also assumes trajectory for the exchange rate ending 2019 and 2020 in R $ / US $ 3.80. In the constant interest scenario at 6.50% pa and constant exchange rate at R $ / US $ 3.85 *, projections are around 3.6% for 2019 and 3.7% for 2020.

The Committee points out that in its basic scenario for inflation, risk factors remain in both directions. On the one hand, (i) the high idle level can continue to produce a prospective path below expectations. On the other hand, (ii) a possible frustration of expectations about the continuity of the necessary reforms and adjustments in the Brazilian economy may affect risk premiums and raise the inflation path in the horizon relevant to monetary policy. Risk (ii) intensifies in the case of (iii) deterioration of the external scenario for emerging economies. The Committee evaluates that the balance of risks for inflation has developed favorably, but understands that, at the moment, risk (ii) is preponderant.

Considering the basic scenario, the risk balance and the wide range of information available, the Copom unanimously decided to maintain the basic interest rate at 6.50% pa. The Committee understands that this decision reflects its basic scenario and balance sheet. risks to prospective inflation and is compatible with the convergence of inflation to the target within the horizon relevant to the conduct of monetary policy, which includes the calendar year of 2019 and mainly of 2020.

The Copom reiterates that the economic situation prescribes stimulating monetary policy, that is, with interest rates below the structural rate.

The Committee deems it important to observe the behavior of the Brazilian economy over time, with a reduction in the degree of uncertainty to which it remains exposed.

The Committee emphasizes that the continuity of the necessary reforms and adjustments in the Brazilian economy is essential for the reduction of the structural interest rate and for the sustainable recovery of the economy. The Committee also notes that the perception of continuity in the reform agenda affects expectations and current macroeconomic projections. In particular, the Committee believes that concrete advances in this agenda are fundamental to consolidate the benign scenario for prospective inflation.

In the evaluation of Copom, the evolution of the basic scenario and the balance of risks prescribes a maintenance of the Selic rate at the current level. The Committee stresses that the next steps in monetary policy will continue to depend on the evolution of economic activity, the balance of risks and projections and inflation expectations.

The following members of the Committee voted: Roberto Oliveira Campos Neto (President), Bruno Serra Fernandes, Carlos Viana de Carvalho, Carolina de Assis Barros, João Manoel Pinho de Mello, Maurício Costa de Moura, Otávio Ribeiro Damaso, Paulo Sérgio Neves de Souza and Tiago Couto Berriel.


* Value obtained by the usual procedure to round the average quotation of the R $ / US $ exchange rate observed during the five business days ended the Friday before the Copom meeting.