The Central Bank assesses that if Congress passes a fiscal framework it deems credible and sound, there is a tendency towards a benign process of reducing inflation, although there is no mechanistic relationship between the fiscal rule and price levels, according to the Minutes of the Monetary Policy Committee (Copom) published this Tuesday.
“The materialization of a scenario with a solid and credible fiscal framework can lead to a more favorable disinflationary process through its effect on the expectations channel, reducing inflation expectations, the uncertainty in the economy, the risk premium associated with the and, consequently, the Committee’s projections,” he said.
The Committee highlighted that inflation expectations remain unanchored to the targets, with a slight marginal deterioration, emphasizing that it is following this movement with concern.
The BC decided to keep the Selic rate at 13.75% pa at a meeting last week, without signaling a possible future cut in the base rate, as requested by the Lula government, but continued to believe that a new interest scenario would rate hikes are now “less likely”.
Source: Terra
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