Brazil analysts expect stable interest rate at 14.25%

Financial institutions expect the benchmark interest rate, known as SELIC, to remain stable at 14.25% per year, during the meeting of the Central Bank's Monetary Policy Committee (COPOM), scheduled for tomorrow (Apr. 26) and Wednesday (Apr. 27). The forecast is part of the Focus Bulletin, released today (Apr. 18) by the Central Bank (BC), based on projections of financial institutions for the main economic indicators.

For 2016, the median of expectations (excluding end values from the projected ranges) for end-of-year SELIC rate increased from 13.38% to 13.25% per annum. By the end of 2017, the expectation for the rate fell from 12.25% to 12% per year.

The SELIC rate is used for trading government securities under the Central Bank's Special System of Settlement and Custody (SELIC) and provides a benchmark for other interest rates in the market. Central Bank's increases in the SELIC rate are designed to contain price pressures created by high demand making credit more expensive to encourage savings. When the Central Bank decreases the benchmark interest rate, it lowers the cost of credit and boost production and consumption, but inflation control becomes looser.

The financial institutions' estimates for inflation, gauged by the Broad National Consumer Price Index (IPCA), rose from 7.08% to 6.98%, the seventh consecutive adjustment. For 2017, estimates fell from 5.93% to 5.80%, the third consecutive decline.

The projections are above the 4.5% target. The estimate for 2016 also pierced the inflation's target ceiling, which is 6.5%. The target ceiling for 2017 is 6%.

The financial institutions' estimates for drop in the economy this year have been revised for the 14th consecutive time, going from 3.80% to 3.88%. For 2017, the projected growth in economy (gross domestic product—the sum of all goods and services produced in the country) increased from 0.20% to 0.30%.

The forecast for the dollar exchange rate remain stable at R$3.80 at the close of 2016 and R$4 at the end of 2017.

Translated by Amarílis Anchieta