•Monetary policy decisions take into account two factors: the baseline scenario (e.g., inflation forecasts, which are driven by variables such as inflation expectations and prospective trends for economic activity, exchange rates and commodity prices) and the balance of risks.

• In recent months, the balance of risks has changed significantly. Uncertainty about the level at which the exchange rate will stabilize has increased, reflecting developments in the international scenario and their impact on Brazil. Furthermore, there are questions about the magnitude of the exchange rate’s effect on inflation. On the other hand, confidence on the consistency of Brazil’s economic recovery may be weakening, given the signs of a cooldown seen since the beginning of the year. 

• As long as such uncertainties prevail — i.e., the international scenario remains volatile and agents have questions about how current inflation and inflation expectations will respond to the exchange rate, in an environment of modest economic recovery — the central bank will likely keep the Selic benchmark rate stable at the current level. 

• Only when the (international and domestic) background becomes clearer, or the risks increase disproportionately on one side, is the monetary authority likely to react. For now, neither seems to be happening.