Central Bank says it has entered a new stage of the Selic, after interest rate shock and keeping an eye on fiscal issues

Fiscal issues In the minutes, the Copom also highlights that fiscal policy continues to be a central risk factor for inflation, both in the short term, through stimulating aggregate demand, and structurally, by affecting perceptions of public debt sustainability. According to the committee, the combination of uncertainties about reform efforts, increased earmarked credit, and doubts about debt stabilization could raise the economy’s neutral interest rate, reducing the effectiveness of monetary policy and increasing the cost of disinflation. The Copom emphasized that fiscal and monetary policies must be ‘harmonious’ to favor inflation convergence to the target. Despite the recent moderation in activity and partial decrease in inflation expectations, the committee assessed that price pressures, especially in services, remain high. In this context, it advocated the need to maintain monetary policy at a significantly restrictive level for an extended period.