The Committee underscored that data on economic activity since the previous Copom meeting suggest resumption of the process of economic recovery. However, they expect this to occur at a gradual pace, and that risks of a global slowdown persist amid an uncertain outlook. Policymakers emphasizes that risks around its baseline scenario remain in both directions. On the one hand, the high level of economic slack may continue to produce lower-than-expected prospective inflation trajectory. The Committee added that the decision reflects its baseline scenario for prospective inflation and the associated balance of risks, and it is consistent with convergence of inflation to target over the relevant horizon for the conduct of monetary policy.
The Copom deemed that the consolidation of the benign scenario for prospective inflation should permit additional adjustment of the same magnitude and added that the next steps in the conduct of monetary policy will continue to depend on the evolution of economic activity, the balance of risks, and on inflation projections and expectations.
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, as the annual inflation rate rose modestly to 2.89 percent in September (versus 3.43 percent in August). Inflation expectations for 2019, 2020, 2021, and 2022 collected by the Focus survey are around 3.3%, 3.6%, 3.8%, and 3.5%, respectively.
The recovery is still taking longer than initially expected. GDP expanded only 1.0 percent year-on-year in the second quarter of 2019, while industrial production in decreased 2.30 percent in August of 2019 over the same month in the previous year, falling for the third straight month. The latest central bank’s Focus survey of market expectations (25 October) pointed slightly higher GDP growth forecasts for 2019, now at 0.91 percent (vs 0.87 percent four weeks ago).