By Lise Alves, Senior Contributing Reporter
SÃO PAULO, BRAZIL – After the controversy involving the decision by Brazil’s Monetary Policy Committee (COPOM) to maintain the country’s benchmark interest (Selic) rate at 14.25 percent, financial institutions surveyed by Brazil’s Central Bank decreased their forecast for the Selic for the end of the year from 15.25 percent to 14.64 percent.
Analysts were expecting the COPOM to increase the Selic by 0.5 percentage points to 14.75 percent last week, since Central Bank president, Alexandre Tombini, had stated that the institution would adopt the necessary measures to control inflation.
For some analysts, COPOM members gave in to government pressure to maintain interest rate levels. When the Selic rate increases, it affects the demand for products and services, making credit more expensive and savings more attractive.
The reduction of the benchmark interest rate, demanded by some sectors of society as well workers’ unions, affects the economy in the opposite manner, encouraging production and consumption. The reduction of the Selic, however, often leads to an increase in inflation.
In the same Focus Report, financial analysts increased this year’s inflation forecast (IPCA) from seven percent to 7.23 percent. This is the fourth consecutive week that the Focus Report registers an increase in its inflation forecast.
Financial institutions also increased the retraction of the country’s GDP forecast for this year, from 2.99 percent to three percent. For 2017, analysts see a slight improvement with the growth of the GDP by 0.8 percent.