Brazil’s Financial Market Raises Inflation Estimate from 3.29 to 3.31 Percent

RIO DE JANEIRO, BRAZIL – The forecast for inflation, calculated weekly using the Broad National Consumer Price Index (IPCA), rose from 3.29 to 3.31 percent.

There has been no change in the forecasts for the following years: 3.60 percent in 2020, 3.75 percent in 2021, and 3.50 percent in 2022.

These are estimates from a survey of financial institutions, prepared weekly by the Central Bank (BC) and published on Mondays in Brasília.

The projections for 2019 and 2020 are below the center of the inflation target to be pursued by the Central Bank.

The inflation target, defined by the National Monetary Council, is 4.25 percent in 2019, four percent in 2020, 3.75 percent in 2021 and 3.50 percent in 2022, with a tolerance interval of 1.5 percentage points up or down.

SELIC Rate

The SELIC is the main instrument used by the Central Bank to control inflation. When the Central Bank’s Monetary Policy Committee (COPOM) reduces the Selic rate, the trend is for credit to become cheaper, encouraging production and consumption, reducing the control of inflation and boosting economic activity.

When the COPOM increases the SELIC rate, the goal is to contain the heated demand and this is reflected in prices because higher interest rates increase the price of credit and encourage savings. The financial market continues to expect the SELIC to close at 4.50 percent a year in 2019 and 2020.

For 2021, the SELIC rate is expected to end the period at six percent per year. The forecast for the end of 2022 is 6.50 percent per year.

Economic growth

The GDP growth estimate, the sum of all goods and services produced in the country, remained at 0.92 percent this year. For 2020, the projection increased from 2.00 to 2.08 percent. The forecast for 2021 and 2022, however, remains at 2.50 percent.

Dollar

The forecast for the Real/Dollar exchange rate is R$4.00 at the end of 2019 and 2020.

Source: Agência Brasil

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