Outlook for 2015 inflation revised up for 13th straight time, changed to 10.61%

The financial market outlook for the end-of-year 2015 inflation as gauged by the Broad National Consumer Price Index (IPCA) was revised up for the 13th consecutive week, changing from 10.44% to 10.61%. For 2016, the projection was raised for the second time in a row, from 6.7% to 6.8%. The estimates were released Monday (Dec. 14) as part of the Central Bank's Focus Report, a weekly publication that provides insight from financial institutions.

Both projections are above the upper target range set for inflation (6.5%). The Central Bank does not expect inflation to meet the target (4.5%) until 2017.

The main instrument used by the Central Bank to curb inflation is the bank interest rate, SELIC. The Monetary Policy Committee (COPOM) which sets the SELIC rate, raised it for seven consecutive time, but at its meetings in September, October and November, it decided to maintain it at the existing 14.25% per annum.

The rate is used in government securities trading under the Special System for Settlement and Custody (SELIC) and provides a benchmark for other interest rates in the market. Increases are designed to curb excess demand that creates inflationary pressures. Higher interest rates make credit more expensive, which stimulates savings.

The projected hike in regulated prices was also revised from 17.65% to 18% this year and from 7.35% to 7.50% in 2016.

High inflation rates have combined with an economic downturn this year and this trend will remain in 2016. The projected Gross Domestic Product (GDP) shrink was revised from 3.50% to 3.62% this year, its fourth consecutive change. For 2016, the projected GDP decline has been revised for the tenth consecutive time, going from 2.31% to 2.67%.

The forecast for the dollar exchange rate dropped from R$ 3.95 to R$3.90 at the end of this year and was kept as its current R$4.20 at the end of 2016.

Translated by Mayra Borges

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