Financial market expects Brazil's inflation to close out this year at 7%

The financial market continues to expect high inflation this year in Brazil. According to the latest update of the Focus Market Readout, a weekly insight into the financial market expectations for economic indicators released on Mondays, the projection for the Broad National Consumer Price Index (IPCA) has been revised from 6.94% to 7%. For 2017, the forecast went down from 5.72% to 5.62%.

These projections are above the midpoint (4.5%) of the target range set for inflation by the government. The target ceiling is 6.5% this year and 6% in 2017.

One of the instruments the Central Bank uses for controlling inflation, the SELIC interest rate, has been projected to close out this year at 13% per annum (down from the previous 13.25% forecast), whereas the expected rate for the close of 2017 has remained at 11.75%. Currently, the SELIC rate stands at 14.25%.

Economic activity

The forecast for Gross Domestic Product (GDP) has been changed, with the projected decline slightly narrowed from 3.89% to 3.86%. But the economic activity is expected to pick up again and grow 0.50% in 2017 (in its third consecutive revision, the forecast went up from last week's 0.40%).

The expectation for industrial production has also been revised to a projected decline of 5.95% for this year (a deterioration from last week's -5.83%). But the outlook for 2017 has improved, with the expected industrial growth revised from 0.50% to 0.74%.

Financial analysts heard by the Central Bank expect the dollar exchange rate to stand at R$3.70 at the end of this year, as against R$3.72 estimated last week. The forecast for the year-end rate in 2017 has changed slightly from R$3.91 to R$3.90.

Translated by Mayra Borges