The Committee judged that the decision reflects its baseline scenario for prospective inflation and the associated balance of risks, and is consistent with convergence of inflation to target over the relevant horizon for the conduct of monetary policy, which includes 2019 and, with gradually increasing weight, 2020. The Copom reiterated that economic conditions prescribe stimulative monetary policy, i.e., interest rates below the structural level.
The Committee emphasises that the evolution of reforms and necessary adjustments in the Brazilian economy is essential to maintain low inflation in the medium and long run, for the reduction of its structural interest rate, and for sustainable economic recovery. The Committee stresses that the perception of continuation of the reform agenda affects current expectations and macroeconomic projections.
The central bank started its easing cycle in October of 2016 after the inflation rate eased from double digits. The inflation rate finished 2018 within the central bank target of 4.5 percent plus or minus 1.5 percentage points and above 2.95 percent in 2017. It currently remains on target. The annual inflation rate in Brazil increased to 4.58 percent in March 2019 from 3.89 percent in the previous month and above market expectations of 3.85 percent. It was the highest inflation rate since February 2017.
The economic recovery is still taking longer than initially expected, with recent negative data. GDP grew 1.1 percent year-on-year in the fourth quarter of 2018, easing from 1.3 percent in the previous three-month period and missing market expectations of 1.3 percent. Furthermore, the latest central bank’s Focus survey of market expectations (3 May 2019) pointed to lower GDP growth forecasts for 2019, lower to 1.49% from 1.97% four weeks ago.