Copom minutes see inflation pressured by four shocks and argue for high rates for longer

Summary written by the Panorama newsroom from the sources listed below. Facts are attributed to the original publications.

War in the Middle East, El Niño, the end of the 6x1 work schedule (six days on, one day off) and the surge in the dollar: these are the four supply shocks that, in the assessment of the Copom (Monetary Policy Committee), explain the deterioration in inflation expectations. The analysis appears in the minutes released by Brazil's Central Bank on Tuesday (10), according to Folha de S.Paulo.

The document describes a domestic scenario with inflation estimates further from the 3% target and lower growth projections. At the same time, the committee acknowledges that high interest rates have been weighing on the economy and assesses that a sharper slowdown in demand may reduce the risk of the shocks generating more persistent inflationary pressures.

In the Copom's reference scenario, the inflation forecast for this year rose from 5.2% to 5.6%, and for 2027, from 3.9% to 4.7%, above the 4.5% ceiling. For the second quarter of 2028, the horizon considered in the decision, the estimate stood at 3.5%. The minutes also note that, after Lula's reelection, there was turbulence in the markets and long-term expectations drifted even further from the target.

Last Wednesday (4), the committee halted its cycle of cuts and kept the Selic benchmark rate at 13.75% a year, after five 0.25-point reductions since March. According to the minutes, all members agreed that rates will need to stay high for a longer period, and the committee believes that perseverance, firmness and serenity will help bring expectations back toward the target.

As in the statement announcing the decision, the minutes do not indicate how long the pause will last, nor do they signal a resumption of cuts or a Selic hike. The next meeting, the last of the year, is scheduled for December 8 and 9.