Brazil: Financial market revises down GDP decline forecast

The financial market's forecast for Brazil's Gross Domestic Product (GDP) has been slightly revised from a decline of 3.86% down to 3.88% this year. In 2017, the forecast has been maintained at 0.50% growth. The estimates are part of the Focus Market Readout, a weekly Central Bank survey of the financial market's expectations.

The financial institutions have kept their forecast for this year's Broad National Consumer Price Index (IPCA) at 7%. For 2017, the projection was lowered from 5.62% to 5.50%. These projected rates are above the target of 4.5%. The upper target rate has been set at 6.5% this year and 6% in 2017. The Central Bank has the role of keeping inflation within target.

Interest

One of the instruments used by the Central Bank to influence economic activity with effects on inflation is the SELIC benchmark interest rate.

The Central Bank's Monetary Policy Committee (COPOM) may increase the SELIC rate to curb demand pressures that could lead to price increases by raising the cost of credit and stimulating savings. Conversely, when COPOM lowers interest, credit tends to become cheaper, boosting production and consumption, but this weakens inflation control.

The financial institutions' projection for the SELIC rate at end-2016 has been maintained at 13%per annum. For the close of 2017, the forecast was revised from 11.75% to 11.50% p.a. The current rate is 14.25% p.a.

Translated by Mayra Borges