Copom cites still resilient economy to justify Selic hike

BRASILIA - The Monetary Policy Committee (Copom) justified the decision for another increase in the Selic rate at last week's meeting, from 14.75% to 15.00% per year, when the market was divided on this possibility and the maintenance of the economy's basic interest rates.

"The economy is still resilient, which makes it difficult for inflation to converge to the target and requires greater monetary tightening," the board wrote in the minutes of the meeting released on Tuesday, the 24th.

The Central Bank's top brass considered, however, that the cycle undertaken so far has been "particularly fast and quite firm", which would have reinforced the understanding that, given the lags inherent in the effects of monetary policy, much of the impact of the more contractionary rate is yet to come. "As a result, the committee announced that it anticipates an interruption in the interest rate hike cycle to assess the accumulated impacts yet to be observed from monetary policy", it stressed.

The document emphasized once again that building the confidence needed to define the appropriate level of monetary restriction over time involves ensuring that monetary policy channels are unobstructed, adding that there should be no mitigating elements for its action.

The text also reiterated that after this rapid and firm cycle of interest rate hikes, Copom is considering interrupting the upward movement to observe the effects on the economy so far. The idea is to assess whether the current interest rate is appropriate to ensure inflation convergence to the target.

The committee reiterated that, once the appropriate interest rate has been determined, it should remain at a "significantly contractionary" level for a very long period of time due to unanchored expectations. "The Committee emphasizes that it will remain vigilant, that future monetary policy steps may be adjusted and that it will not hesitate to continue the adjustment cycle if it deems it appropriate."