Financial institutions raise inflation forecast to 7.61%

The forecast made by financial institutions for the inflation this year was raised for the seventh time straight. This time the prediction for the National Broad Consumer Price Index (IPCA) went from 7.56% to 7.61%. As for 2017, the forecast remains at 6%, according to the Central Bank's weekly Focus Market Readout, based on projections by financial institutions for the chief economic indicators.

Inflation estimates are far from the 4.5% set as center of the target, and are now beyond the 6.5% ceiling.

The high inflation notwithstanding, the financial institutions do not expect the Central Bank to raise the SELIC benchmark interest rate this year, given the economic slowdown. The forecast for the end of 2016 has stood at 14.25% per annum for two weeks. Next year, a reduction is expected to affect the SELIC rate, but the estimate for the end of 2017 was moved up from 12.50% to 12.75% per annum.

The rate is used in the negotiation of securities in the Special Clearance and Escrow System (SELIC) and serves as benchmark for the other interest rates in the economy. By pushing it up, the Central Bank curbs the excess of the demand, which puts pressure on prices, because higher interest make credit pricier and encourage saving. When the benchmark is reduced, the Central Bank's Monetary Policy Committee (COPOM) makes credit cheaper and stimulates production and consumption, but loosens up the control over the inflation.

Economic activity

Financial institutions forecast a drop of 3.33% in the gross domestic product (GDP) this year, in the fourth consecutive turn for the worse in this estimate. The previous outlook was 3.21%.

For 2017, an economic recovery is expected, but the growth outlook is dwindling. In the fourth consecutive adjustment, estimates of rise decreased from 0.60% to 0.59%.

The forecast for the US dollar rate increased from R$4.35 to R$4.38 for the end of 2016, and the prediction is maintained at R$4.40 for the end of 2017.

Translated by Fabrício Ferreira / Amarílis Anchieta