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 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 rose to 3.89 percent in February of 2019 from 3.78 percent in the previous month. It was the highest inflation rate in three months.
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. Household consumption and exports drove the expansion, while fixed investment rose at softer pace and government spending contracted. Meantime, industrial production in Brazil decreased 2.6 percent year-on-year in January 2019, following a 3.6 percent decline in the prior month and compared with market forecasts of a 1.2 percent fall.
The Copom's inflation projections in the scenario with interest rate and exchange rate paths extracted from the Focus survey stand around 3.9% for 2019 and 3.8% for 2020..