Financial Market Expects 2019 to End With Inflation at 3.42 Percent

RIO DE JANEIRO, BRAZIL – Financial institutions have, for the ninth consecutive week, reduced their estimate for inflation this year.

According to a Central Bank survey of the financial market, published every Monday on the Internet, the forecast for inflation, calculated by the National Broad Consumer Price Index, went from 3.43 percent to 3.42 percent in 2019.

For 2020, the estimate fell from 3.79 percent to 3.78 percent, in the second consecutive reduction. The forecast for the following years was unchanged: 3.75 percent in 2021 and 3.5 percent in 2022.

The projections for 2019 and 2020 are below 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 3.5 percent in 2022, with a tolerance interval of 1.5 percentage points up or down.

The main instrument used by the Central Bank to control inflation is the basic interest rate, SELIC. When the Central Bank’s Monetary Policy Committee (COPOM) reduces the SELIC rate, the tendency is for credit to become cheaper, with incentives for production and consumption, reducing inflation control and stimulating economic activity.

When COPOM increases the SELIC rate, the objective is to contain the heated demand and this causes effects on prices because higher interest rates make credit more expensive and stimulate savings.

For the financial market, SELIC should end 2019 at 4.75 percent per year. Currently, the SELIC is at 5.5 percent per year.

The financial market has not changed its estimate for the end of 2020: five percent per year. For 2021, the expectation is that SELIC will end the period at 6.5 percent per year. By the end of 2022, the forecast remains at seven percent per year.

Economic growth

The forecast for the expansion of the Gross Domestic Product (GDP) is maintained at 0.87 percent in 2019 for five consecutive weeks.

Estimates for the following years were also unchanged: two percent in 2020; and 2.5 percent in 2021 and 2022.

Dollar

The forecast for the dollar rate is R$4 and, for 2020, rose from R$3.91 to R$3.95.

Source: Agência Brasil