The financial market increased its economic growth and inflation projections for this year. This Monday’s edition (14) of the Focus Bulletin – issued by the Central Bank – points out that growth in Gross Domestic Product (GDP) is expected to be 3.01%, slightly above the 3% projected last week. Inflation – measured by the Broad National Consumer Price Index (IPCA) – was projected at 4.39%, compared to 4.38% last week.
The Focus survey is carried out with economists and is released weekly by the Central Bank. For 2025, the publication maintained last week’s GDP growth projection – the sum of goods and services produced in the country. According to the financial market, GDP next year should be 1.93%. For 2025 and 2026, the GDP expansion projection is 2% for both years.
In 2023, also exceeding projections, the Brazilian economy grew 2.9%with a total value of R$10.9 trillion, according to the Brazilian Institute of Geography and Statistics (IBGE). In 2022, the growth rate had been 3%.
Inflation
The IPCA forecast – considered the country’s official inflation – for 2025 fell, going from 3.97% last week to 3.96% this week. For 2026 and 2027, forecasts are also 3.6% and 3.5%, respectively.
The estimate for 2024 is above the inflation target, but still within the tolerance margin that must be pursued by the BC. Defined by the National Monetary Council (CMN), the target is 3% for this year, with a tolerance range of 1.5 percentage points up or down. In other words, the lower limit is 1.5% and the upper limit is 4.5%.
From 2025 onwards, the continuous target system will come into force (https://agenciabrasil.ebc.com.br/economia/noticia/2024-06/bc-descumprira-meta-se-inflacao-ficar-fora-do- target-for-six-months) and, thus, the CMN no longer needs to define an inflation target each year. The board set the center of the continuous target at 3%, with a tolerance margin of 1.5 percentage points up or down.
In September, driven mainly by spending on household electricity bills, the IPCA registered an increase of 0.44%. The increase was 0.46 percentage points in relation to the previous month (-0.02%), influenced by the housing group (1.8%), which accounts for the adjustment in residential electricity tariffs.
During the period, expenditure on energy consumption went from -2.77% in August to 5.36% in September. The food and beverage group also contributed to the accelerated IPCA (0.5%), which registered an increase after two months of consecutive falls.
For the year, accumulated inflation is 3.31%, and – in the last 12 months – the index is 4.42%.
Interest rate
Regarding the basic interest rate, the Selic, Focus maintained last week’s projection that the rate will end 2024 at 11.75%. For 2025, the financial market projection is that the Selic will remain at 11%. For 2026 and 2027, projections are that it will remain at 9.5% and 9%, respectively.
To achieve the inflation target, the Central Bank uses as its main instrument the basic interest rate, the Selic, set at 10.75% per year by the Monetary Policy Committee (Copom). The recent rise in the dollar and the uncertainties surrounding inflation made the board raise interest rates for the first time in more than two years, at the last meeting in September.
The last interest rate hike occurred in August 2022, when the rate rose from 13.25% to 13.75% per year. After spending a year at this level, the rate had six cuts of 0.5 points and one cut of 0.25 points, between August last year and May this year. At meetings in June and July, the Copom decided to maintain the rate at 10.5% per year.
Base rate
The next Copom meeting is scheduled for November 5th and 6th, when analysts expect a new increase in the basic rate. For the financial market, Selic should end 2024 at 11.75% per year.
When the Copom increases the basic interest rate, the purpose is to contain heated demand, and this has an impact on prices because higher interest rates make credit more expensive and encourage savings. But, in addition to Selic, banks consider other factors when defining the interest charged to consumers, such as risk of default, profit and administrative expenses. Therefore, higher rates can also make it difficult for the economy to expand.
When the Selic rate is reduced, the tendency is for credit to become cheaper, encouraging production and consumption, reducing control over inflation and stimulating economic activity.
Exchange
Regarding the exchange rate, the dollar exchange rate forecast was R$5.40 for the end of this year. At the end of 2025, the forecast is that the North American currency will remain at R$5.40. For 2026, the exchange rate should remain, according to Focus, at R$5.30, the same projection for 2027.
