Brazil financial market widens GDP decline projection for this year

Financial institutions heard by Brazil's Central Bank expect the economy to shrink slightly further this year than previously forecast. They revised their estimate for the Gross Domestic Product (GDP) decline from 3.16% to 3.20%. The growth projection for 2017 has been raised from 1.23% to 1.30%.

These figures are part of the Focus Market Readout, a weekly Central Bank report on Brazil's main economic indicators.

The forecast for official annual inflation as gauged by the Broad National Consumer Price Index (IPCA) has been maintained at 7.34% this year and lowered from 5.14% to 5.12% next year. These forecasts are well above the 4.5% target for this and next year. The upper target range set by the government is 6.5% for this year and 6.0% for 2017.

The Central Bank is responsible for ensuring inflation meets the target, by using such instruments 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' expectations for the end-of-year SELIC rate has been maintained at 13.75% p.a. for 2016, and revised from 11.25% to 11% p.a. for 2017.

The projected dollar exchange rate against the real has been lowered from R$3.29 to R$3.26 for the end of 2016 and kept at R$3.45 for the end of 2017.

Translated by Mayra Borges