Economic Growth Forecast Rises While Inflation Estimate Drops

RIO DE JANEIRO, BRAZIL – The financial market increased the projections for economic growth and reduced the inflation estimate for this year. According to the Focus bulletin, a survey released weekly by the Central Bank (BC), the forecast for the expansion of Gross Domestic Product (GDP) has been adjusted from 0.81 percent to 0.83 percent this year.

According to the survey, the forecast for 2020 also increased, from 2.1 percent to 2.2 percent. There was no change in estimates for 2021 and 2022: 2.5 percent.

Inflation

The inflation estimate, computed using the Broad National Consumer Price Index (IPCA), fell from 3.76 percent to 3.71 percent. There was no change in estimates for the coming years: 3.90 percent in 2020, 3.75 percent in 2021, and 3.5 percent in 2022.

The inflation target set by the National Monetary Council (CMN) is 4.25 percent in 2019, four percent in 2020, 3.75 percent in 2021 and 3.5 percent in 2022, with a tolerance of 1.5 percentage points up or down.

To reach the inflation target, the Central Bank uses the basic interest rate, Selic, as its main instrument, currently at six percent. When Copom reduces the Selic rate, the trend is for credit to become cheaper, with incentives for production and consumption, reducing inflation control and boosting economic activity.

When the Monetary Policy Committee (COPOM) increases the Selic rate, the aim is to contain heated demand, and this affects prices because higher interest rates increase the cost of credit and stimulate savings.

By the end of 2019, Selic will stand at five percent a year for the financial market. By the end of 2020, the estimate remains at 5.5 percent a year. By the end of 2021 and 2022, the forecast remains at seven percent per year.

Dollar

The forecast for the dollar rate at the end of this year rose from R$3.75 to R$3.78, and from R$3.80 to R$3.81 for 2020.