Financial market expects 3.73% GDP decline this year
The forecast of financial institutions for the decline in Brazil's Gross Domestic Product (GDP) in 2016 was revised from 3.66% to 3.73%. This has been the 11th straight revision of the GDP growth projected by the market this year.
For 2017, the GDP forecast changed from 0.35% to 0.30% in its third consecutive revision. The projections are part of the Focus Market Readout, a weekly report published by the Central Bank (BC) based on financial analysts and investors' forecast for the main economic indicators.
The forecast for year-end inflation has also been revised for the fourth time in a row, going from 7.31% to 7.28%. For 2017, the forecast has stood at 6% for eight consecutive weeks. These projections are above the inflation target of 4.5%. The target ceiling is 6.5% this year and 6% in 2017.
In a scenario of economic downturn, financial institutions expect the Central Bank to reduce its interest rate, the SELIC. The expected rate at the close of 2016 has changed from the current 14.25% to 13.75% per annum. For the end of 2017, the median of expectations for the SELIC rate is 12.50%.
In a press conference to present the Inflation Report last Thursday (Mar. 31), however, the head of Economic Policy of the Central Bank, Altamir Lopes, said that the SELIC interest rate is not likely to decrease. “It's up to the market to adjust itself,” he said. The SELIC rate is used for trading government securities and provides a benchmark for other interest rates in the market.
Increases in the SELIC rate are designed to contain price pressures created by high demand, making credit more expensive credit to encourage saving. Conversely, when the BC's Monetary Policy Committee (COPOM) decreases the benchmark interest rate, it lowers the cost of credit and boosts production and consumption, but inflation control becomes looser.
The forecast for the dollar exchange rate was revised down from R$4.15 to R$4 at the close of 2016, and from R$4.20 to R$4.10 at the end of 2017.
Translated by Mayra Borges
Fonte: Financial market expects 3.73% GDP decline this year
