Financial market raises inflation forecast to 4.81% this year

The financial market’s forecast for Brazil’s National Broad Consumer Price Index—the IPCA, which gauges the country’s official inflation—went up from 4.71 to 4.81 percent in 2021. The estimate can be found in the Central Bank’s weekly survey Focus, released today (Mar. 29) with projections for all the main economic indicators.

For 2022, the inflation estimate stood at 3.51 percent. For both 2023 and 2024, predictions are 3.25 percent.

The index for 2021 is above the center of the inflation target pursued by the Central Bank. The target, set by the National Monetary Council, is 3.75 percent for this year, with a tolerance interval of 1.5 percentage points, more or less. In other words, the bottom limit is 2.25 percent, and the upper limit is 5.25 percent.

Interest rate

To meet the inflation target, the Central Bank uses the benchmark interest rate—the Selic—as its main tool, currently at 2.75 percent a year. The rate is set by the Monetary Policy Committee, or Copom.

For the financial market, the estimate is that the Selic closes out 2021 at five percent a year. For the end of 2022, the interest rate is expected to rise to six percent a year. For the end of 2023 and 2024, in turn, the projection is 6.5 and 6.38 percent a year, respectively.

GDP and exchange

The financial institutions heard by the Central Bank reduced their projection for the growth of Brazil’s economy this year from 3.22 to 3.18 percent.

For the coming year, the expectation for the growth domestic product (GDP) stands at 2.34 percent. In 2023 and 2024, the financial market estimates an expansion of 2.5 percent.

The estimated exchange rate for the dollar went from R$5.30 to R$5.33 late this year. For the end of 2022, the US currency should stand at R$5.26.