Copom’s odyssey

BRAZIL ECONOMICS - Report 25 Jun 2025 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

The main purpose of the latest Copom Minutes is to prevent the market from anticipating the beginning of the monetary easing cycle. The concern, naturally, is that market behavior could affect the yield curve and thereby undo part of the monetary tightening promoted by the Central Bank, which brought the Selic target rate from 10.50% to 15.00% per year over approximately nine months.

For this reason, the Minutes emphasize no less than five times that monetary policy must remain “significantly contractionary monetary policy for a very prolonged period.” The question remains: what exactly qualifies as "very prolonged period" and to what extent can such a promise be fulfilled in light of the Committee's own inflation projections and its reaction function — that is, how the Central Bank responds to the gap between projected inflation and the inflation target when setting the benchmark interest rate. As discussed at the end of this report, early 2026 seems to be the likely moment for a new monetary policy inflection point.

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