Financial market estimates 5.12% plunge in economy this year

This is the 14th consecutive time a fall is forecast in the GDP

Published on 18/05/2020 - 11:40 By Kelly Oliveira - Brasília

The financial market is still revising the estimate for the contraction in the economy this year. For the 14th consecutive time, it aggravated the expectations of the financial market for the reduction in the country’s gross domestic product (GDP). This time, the projected fall went from 4.11 to 5.12 percent.

The estimate can be found in the Focus market readout, published weekly by the Central Bank, with the projections for the main economic indicators.

The estimate for the growth of the country’s GDP in 2021 is still 3.2 percent, and for 2022 and 2023 still 2.5 percent.

Dollar

The exchange rate for the dollar is likely to close out the year at R$ 5.28. Last week, the forecast was R$ 5. For 2021, the US currency is likely to stay at R$ 5, against last week’s R$ 4.83.

Inflation

The financial institutions surveyed by the Central Bank continue reducing the estimate for 2020’s inflation. The projection for the National Broad Consumer Price Index (IPCA) was slashed for the tenth time in a row, going from 1.75 to 1.59 percent.

For 2021, the estimated inflation was also brought down, from 3.25 to 3.20 percent. The forecast for the following years—2022 and 2023—were kept unchanged, at 3.50 percent.

The projection for 2020 is below the target set for the inflation to be pursued by the Central Bank. The target, established by the National Monetary Council, is four percent for 2020, with a tolerance interval of 1.5 percentage points, plus or minus. In other words, the bottom limit is 2.5 percent, the upper limit is 5.5 percent.

For 2021, the target is 3.75 percent, and, for 2022, 3.50 percent—also with a 1.5 percentage point interval for each year.

Selic

To meet the inflation market, the Central Bank avails itself of the benchmark interest rate, or Selic, currently set by the Monetary Policy Committee (Copom) at three percent.

The financial market expects the Selic to close out 2020 at 2.25 percent a year, compared to the previously estimated 2.5 percent.

When the Copom reduces the Selic rate, credit tends to become cheaper, joined by an incentive for production and consumption, reducing the control of the inflation and stimulating economic activity. When the Copom cuts the benchmark interest rate, the goal is to curb a warmed-up demand, and this makes an impact on prices, because higher interest makes credit more expensive and stimulate savings.

At the end of 2021, the interest rate is expected to reach an annual 3.5 percent. For the end of 2022, institutions cut the forecast from 5.5 to 5.25 percent a year, and, for the end of 2023, the estimate is still six percent a year.

Translation: Fabrício Ferreira -  Edition: Graça Adjuto

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