Brazil’s Market Expects Higher Inflation, Lower GDP Growth for 2018

By Lise Alves, Senior Contributing Reporter

RIO DE JANEIRO, BRAZIL – Financial institutions in Brazil have increased their forecast for the country’s inflation (IPCA) this year, from 4.11 percent to 4.15 percent, according to the latest Focus Bulletin, released by Brazil’s Central Bank (CB) on Monday (August 13th).

The Bulletin also expects a decrease in GDP growth, stabilization in the benchmark interest rate and an appreciation of the Brazilian real in relation to the U.S. dollar by the end of the year.

Despite the increase, the latest market expectation continues below the inflation target established by the CB, of 4.5 percent this year, and within the accepted range which is between 3 and 6 percent in 2018.

The forecast for the expansion of the GDP (Gross Domestic Product) was revised slightly downwards, from 1.5 to 1.49 percent this year. For 2019, 2020 and 2021, the estimate for GDP growth remains at 2.5 percent.

The Focus Bulletin also revealed that financial institutions believe that the country’s benchmark interest rate (SELIC) should remain at 6.5 percentage points until the end of the year. At the beginning of August the Central ‘s Copom (Monetary Policy Committee) announced it was maintaining the rate, the lowest since 1986.

By 2019, however, the market expects the BC to increase the base rate, ending the year at eight percent per year.

The forecast of the financial institutions measured by the Central Bank also calls for the U.S. dollar exchange rate to close at R$ 3.70/US$1 at the end of this year, despite the appreciation of the US dollar last week (to R$3.86/US$1) and the likelihood of a volatile scenario until the October Presidential elections.

The Focus Report is a weekly survey conducted by the Central Bank with forecasts from more than one hundred financial institutions.