Brazil's financial market narrows down GDP decline projection for this year

Financial institutions heard by Brazil's Central Bank (BC) have revised their forecast for Brazil's economic downturn this year. The estimated decline in the Gross Domestic Product (GDP) has been narrowed from 3.23% to 3.20%.

The projected GDP growth in 2016 has remained at 1.1% for four straight weeks.

These forecasts are part of the Focus Market Readout, a weekly report with insight from the financial market on the main economic indicators, published by the Central Bank on Mondays.

The expectation for inflation as officially gauged by the Broad National Consumer Price Index (IPCA) was raised from 7.20% to 7.31% (for 2016) and maintained at 5.14% (for 2017).

These figures are still far from the 4.5% inflation target. The expected rate for 2016 is also above the upper target range of 6.5%. The target ceiling set for 2017 is 6%.

The Central Bank is responsible for making sure inflation stays within target, by using such instruments as the benchmark interest rate (SELIC) to influence economic activity and consequently inflation. The SELIC rate currently stands at 14.25% per annum.

The financial institutions' forecast for the SELIC rate rose from 13.50% to 13.75% p.a. at the end of 2016 and was maintained at 11% p.a. at the end of 2017.

The projection for the dollar exchange rate remains below R$3.30 at the end of 2016 and R$3.50 at the end of 2017.

Translated by Mayra Borges