Fri, 21 Feb 2020

The financial institutions surveyed by Brazil's Central Bank (BC) reduced the estimated inflation for this year. The projection for the National Broad Consumer Price Index-the IPCA, which gauges the country's official inflation-went from 3.56 percent to 3.47 percent. The figures can be found in the Focus readout, published weekly by the Central Bank with estimates for the main economic indicators.

For 2021, the projected inflation remains at 3.75 percent. The forecasts for the following years were also kept unchanged: 3.50 percent in 2022 and 2023.

The estimate for 2020 is below the target of the inflation that should be pursued by the Central Bank. The target, set by the National Monetary Council, stands at four percent in 2020, with an interval of plus or minus 1.5 percentage points as tolerance.

Selic

As a tool to meet the goal established for the inflation, the Central Bank avails itself of the benchmark interest rate, the Selic, currently set at 4.5 percent a year by the Monetary Policy Committee, or Copom.

According to the readout, the Selic is likely to drop to 4.25 percent a year by the end of 2020. When Copom lowers the Selic rate, as expected by the financial market, credit tends to be pulled down, stimulating production and consumption, reducing the control over inflation and boosting economic activity.

Alternatively, increasing the interest rate aims to curb the demand and may have an impact on prices, as higher interests make credit more expensive and stimulate saving. Preserving the Selic as it is indicates that Copom regards previous changes sufficient to meet the inflation target.

For 2021, interest is expected to grow to 6.25 percent. For 2022 and 2023, institutions estimate that the Selic closes out the period at a yearly 6.5 percent.

Economic activity

The estimated increase in Brazil's gross domestic product is still at 2.31 percent for 2020. The forecasts calculated by the financial institutions for the coming years (2021, 2022, 2023) also continue at 2.50 percent.

The financial market's estimates for the dollar are R$ 4.10 for the end of this year and R$ 4.00 for 2021.

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