Market raises inflation forecast to 7,29%
The Central Bank's Focus Bulletin indicates that financial institutions have raised their inflation projection for 2016, measured by the Broad National Consumer Price Index (IPCA), for the sixth consecutive time; the indicator rose from 7,25% to 7,29%; for 2017, the estimate has remained at 5,5% for six consecutive weeks; the estimate for the fall in Gross Domestic Product (GDP) was maintained at 3,44% this year; for 2017, the growth estimate was maintained at 1%.
Kelly Oliveira, reporter for Agência Brasil - Financial institutions' projections for inflation in 2016, measured by the Broad National Consumer Price Index (IPCA), rose for the sixth consecutive time, from 7,25% to 7,29%. For 2017, the estimate has remained at 5,5% for six consecutive weeks. These projections are part of a survey conducted weekly by the Central Bank (BC) and released on Mondays.
Estimates are above the center of the 4,5% inflation target. The upper limit of the inflation target is 6,5% this year and 6% in 2017. It is the Central Bank's job to keep inflation within the target. One of the instruments used to influence economic activity and, consequently, inflation, is the basic interest rate, the Selic rate.
When the Monetary Policy Committee (Copom) of the Central Bank raises the Selic rate, the objective is to curb heated demand, and this has repercussions on prices because higher interest rates make credit more expensive and encourage saving. Conversely, when Copom reduces the basic interest rate, the tendency is for credit to become cheaper, incentivizing production and consumption, but this measure eases control over inflation.
The Central Bank must find a balance when making decisions about the benchmark interest rate, in order to keep inflation within the target set by the National Monetary Council. Currently, the Selic rate is at 14,25% per year.
Financial institutions' expectations for the interest rate at the end of 2016 rose from 13% to 13,25% per year. For the end of 2017, the expectation for the benchmark interest rate fell from 11,25% to 11% per year.
Financial institutions' estimate for the decline in Gross Domestic Product (GDP), the sum of all goods and services produced in the country, remained at 3,44% this year. For 2017, the growth estimate was maintained at 1%.
The projection for the dollar exchange rate was maintained at R$ 3,60 at the end of this year, and at R$ 3,80 at the end of 2017.