The financial market increased its inflation estimate for this year. The forecast for the Broad National Consumer Price Index (IPCA) rose from 3.02% to 3.20%, according to the Focus bulletin, a publication released every week by the Central Bank (BC), with the projection for the main economic indicators.
Last Friday (6), the Brazilian Institute of Geography and Statistics (IBGE) reported that the IPCA reached 0.86% in October this year, the highest rate of the indicator for the month since 2002 (1.31%). With the October result, the IPCA accumulates inflation rates of 2.22% in the year and 3.92% in 12 months.
For 2021, the inflation estimate increased from 3.11% to 3.17%. The forecast for 2022 and 2023 has not changed: 3.50% and 3.25%, respectively.
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The projection for 2020 is below the center of the inflation target that should be pursued by the BC. The target, defined by the National Monetary Council, has a center of 4% in 2020, with a tolerance range of 1.5 percentage points up or down. In other words, the lower limit is 2.5% and the upper limit is 5.5%.
For 2021, the target is 3.75%, for 2022, 3.50%, and for 2023, 3.25%, with an interval of 1.5 percentage points up or down, each year.
Selic
To achieve the inflation target, the Central Bank uses the basic interest rate, the Selic, as its main instrument. On the 28th, the Monetary Policy Committee (Copom) decided to maintain the Selic at 2% per year. For Copom, despite the increase observed in the price of food and industrial items, the effect on inflation will be temporary.
The expectation of financial institutions is that the Selic will end 2020 at 2% per year. By the end of 2021, the expectation is that the base rate will reach 2.75% per year. For the end of 2022, the forecast is 4.5% per year and for the end of 2023, 5.5% per year.
When Copom reduces the Selic, the tendency is for credit to become cheaper, encouraging production and consumption, reducing inflation control and stimulating economic activity. However, banks consider other factors when defining the interest charged to consumers, such as risk of default, profit and administrative expenses.
When Copom increases the basic interest rate, the objective is to contain heated demand, and this has an impact on prices because higher interest rates make credit more expensive and encourage savings.
And when the Selic is maintained, the Copom considers that previous adjustments were sufficient to keep inflation under control.
Economic activity
The financial market forecast for the fall of the Brazilian economy this year was adjusted from 4.81% to 4.80%.
For next year, growth expectations went from 3.34% to 3.31%. In 2022 and 2023, the financial market continues to project an expansion of 2.50% of GDP.
Dollar
The forecast for the dollar exchange rate remained at R$ 5.45 this year and R$ 5.20 in 2021.
Source: DATA
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