Financial Market Reduces Estimated Inflation for Fifth Consecutive Time

RIO DE JANEIRO, BRAZIL – The financial market has reduced its inflation estimate for this year for the fifth time in a row. According to the Focus bulletin, a survey released every week by the Central Bank (BC), the forecast for annual inflation, calculated by the National Broad Consumer Price Index (IPCA), fell from 3.59 percent to 3.54 percent this year.

For 2020, the estimate was also reduced, going from 3.85 percent to 3.82 percent. The forecast for the following years was unchanged: 3.75 percent in 2021 and 3.50 percent in 2022.

The inflation rate targets set by the National Monetary Council are 4.25 percent in 2019, 4 percent in 2020, 3.75 percent in 2021 and 3.50 percent in 2022, with a margin of error of 1.5 percentage points.

To estimate inflation rates, the Central Bank uses the basic interest rate, Selic, as its main instrument, currently at six percent. When the Monetary Policy Committee (COPOM) reduces the Selic rate, the trend is for credit costs to become lower, with incentives for production and consumption, reducing inflation control and stimulating economic activity.

When COPOM increases the Selic, the purpose is to contain heated demand and this causes effects on prices because higher interest rates discourage credit and stimulate savings.

For the financial market, by the end of 2019, Selic will be at five percent per year. By the end of 2020, the estimate is 5.25 percent per year. By the end of 2021 and 2022, the forecast remains at seven percent per year.

The forecast for the expansion of Brazil’s Gross Domestic Product (GDP) was maintained at 0.87 percent in 2019.

According to the Central Bank, the forecast for 2020 fell from 2.1 percent to 2.07 percent. For 2021 and 2022 there was also no change in estimates: 2.5 percent.

Dollar

The forecast for the dollar rate at the end of this year rose from R$ 3.85 to R$ 3.87 and, for 2020, from R$ 3.82 to R$ 3.85.

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