Objectives and background

The Central Bank of Brazil's (BCB) Monetary Policy Committee (COPOM) was created on June 20th 1996, and was assigned the responsibility of setting the stance of monetary policy and the short-term interest rate. The aim in creating the COPOM was to enhance monetary policy transparency and confer adequate regularity to the monetary policy decision-making process. Currently, many Central Banks around the world follow similar procedures, facilitating the decision-making process, monetary policy transparency and communication with the public.

Since 1996, the COPOM's composition and objectives, and the frequency of its meetings, have undergone a number of changes. These alterations were aimed not only at improving the decision-making process but also reflected changes in Brazil's monetary regime. Brazil implemented a formal inflation-targeting framework for monetary policy in June of 1999. Under the inflation-targeting regime, the COPOM's monetary policy decisions have as their main objective the achievement of the inflation targets set by the National Monetary Council (CMN). If inflation breaches the target set by the CMN, the Governor of the Central Bank is required to write an open letter to the Minister of Finance explaining the reasons the target was missed, as well as the measures required to bring inflation back to the target, and the time period over which these measures are expected to take effect.

The interest rate target set by the COPOM is the target for the SELIC interest rate, the interest rate for overnight interbank loans collateralized by government bonds registered with and traded on the Sistema Especial de Liquidação e Custódia. The SELIC target is fixed for the period between regular COPOM meetings. The COPOM can also establish a monetary policy bias at its regular meetings; a bias (to ease or tighten) authorizes the Central Bank's Governor to alter the SELIC interest rate target in the direction of the bias at anytime between regular COPOM meetings.

The COPOM is composed of the members of the Central Bank's Board of Governors: the Central Bank Governor and the Deputy Governors of Monetary Policy, Economic Policy, International Affairs and Risk Management, Financial Regulation, Financial System Organization and Control of Farm Credit, Supervision, Administration, Institutional Relations and Citizenship. The Governor of the BCB holds the deciding vote in cases where the COPOM is evenly split on a monetary policy decision.

Since 2000, the COPOM's regular meetings have been held once per month, but from 2006 on the committee will hold eight regular meetings, which last two days. The meeting begins on a Tuesday and continues on the following day.

In addition to the members of the COPOM, the first day of a regular COPOM meeting is attended by the heads of seven Central Bank departments: the Department of Economics (DEPEC), Foreign Reserves Department (DEPIN), Department of Banking Operations and Payments System (DEBAN), Open Market Operations Department (DEMAB), Investor Relations and Special Studies Department (GERIN), International Affairs Department (DERIN) and Research Department (DEPEP). Two senior advisors, the Head of the Governor’s Office and the Press Officer also attend the first day of the meeting, as does any other official who is eventually invited by the Central Bank Governor.

During the first day of the meeting, the department heads present a review of the economic environment, covering topics including: inflation, the level of economic activity, monetary indicators, the fiscal accounts, the balance of payments, external macroeconomic developments, the foreign exchange market, international reserve operations, the domestic money market, open market operations, private sector inflation expectations and expected future inflation trends, as well as other macroeconomic variables expectations and their expected future trends.

Participation in the second day of the meeting is limited to the members of the COPOM and the head of DEPEP. On the second day, the Deputy-Governors of Monetary Policy and Economic Policy present the alternatives for the short-term interest rate and their policy recommendations. Then the other members of the Board make their own comments and proposals. At the conclusion of the discussion, the members vote on a final proposal, with the goal of reaching a consensus decision. The final decision - the SELIC Rate target and the bias, if any - is then announced by the Deputy Governor of Monetary Policy, on the same day, after the closing time of local financial markets. The votes are also disclosed to the public.

The Committee releases the meeting minutes on the Central Bank's website and to the press through the Central Bank's press officer up to six working days after each decision is reached. The minutes provide a summary of the COPOM's discussion, in line with the inflation targeting regime's commitments to transparency and accountability.

At the end of each quarter (March, June, September, December), the COPOM publishes the Central Bank's Inflation Report, which provides detailed information on economic conditions, as well as the COPOM's inflation projections from its most recent meeting.