The market raises its inflation outlook and again lowers its GDP forecast.
Financial institutions consulted by the Central Bank (BC) continue to reduce their economic growth projections and increase their inflation estimates; the projection for the Broad National Consumer Price Index (IPCA) rose from 3,88% to 4% this year; the projection for GDP growth fell from 1,76% to 1,55%, marking the eighth consecutive reduction.
Kelly Oliveira, reporter for Agência Brasil Financial institutions consulted by the Central Bank continue to reduce their economic growth projections and increase their inflation estimates. In the sixth consecutive increase, the projection for the Broad National Consumer Price Index (IPCA) rose from 3,88% to 4% this year. For 2019, the estimate remains at 4,10%.
Even with the increased projections, estimates remain below the 4,5% target, with a lower limit of 3% and an upper limit of 6% for this year. For 2019, the target is 4,25% with a tolerance range between 2,75% and 5,75%.
To achieve the inflation target, the Central Bank uses the benchmark interest rate, the Selic rate, as its instrument. Last week, the Central Bank's Monetary Policy Committee (Copom) decided to maintain the Selic rate at 6,5% per year.
The Selic rate should remain at 6,5% per year.
Financial institutions expect the Selic rate to remain at 6,5% per year until the end of 2018. For 2019, the expectation is for an increase in the basic rate, ending the period at 8% per year.
When the Copom (Monetary Policy Committee) raises the Selic rate (Brazil's benchmark interest rate), the goal is to curb heated demand, and this has repercussions on prices because higher interest rates make credit more expensive and encourage saving.
When the Copom (Monetary Policy Committee) lowers the basic interest rates, the tendency is for credit to become cheaper, incentivizing production and consumption, thus reducing control over inflation.
Maintaining the Selic rate, as predicted by the financial market, indicates that the Copom (Monetary Policy Committee) considers the previous changes sufficient to reach the inflation target, an objective that should be pursued by the Central Bank.
Economic activity
The financial market's estimate for economic growth continues to be reduced. The projection for the expansion of the Gross Domestic Product (GDP) – the sum of all goods and services produced in the country – fell from 1,76% to 1,55%, marking the eighth consecutive reduction.
The GDP growth forecast for 2019 has fallen for the third consecutive time, from 2,70% to 2,60%.
The financial market's forecast for the dollar exchange rate has increased from R$ 3,63 to R$ 3,65 by the end of this year, and remains at R$ 3,60 for the end of 2019.