The financial market forecast for the Extended National Consumer Price Index (IPCA), considered the country’s official inflation, registers an increase in relation to last week’s projection. The index goes from 5.23% to 5.31%. For 2024 and 2025, the projections are for inflation at 3.65% and 3.25%, respectively.
The estimate appears in the edition of today (2) from Boletim Focus, a survey released weekly by the Central Bank (BC) with the expectations of financial institutions for the main economic indicators.
Interest rate
To reach the inflation target, the Central Bank uses the basic interest rate, the Selic, as its main instrument, set at 13.75% per year by the Monetary Policy Committee (Copom). The rate is at its highest level since January 2017, when it was also at that level.
The next Copom meeting is scheduled for January 31st and February 1st of this year. For the financial market, the expectation is that the Selic will be maintained at the same 13.75% per year in this first meeting of the year. But by the end of this year, the estimate is that the basic rate will remain at 12% per annum, against 11.75% per annum predicted last week. As for 2024 and 2025, the forecast is for Selic at 9% per year and 8% per year, respectively.
When the Copom raises the basic interest rate, the purpose is to contain heated demand, and this affects prices because higher interest rates make credit more expensive and stimulate savings. Thus, higher rates can also make it harder for the economy to expand. In addition to the Selic, banks consider other factors when defining the interest charged from consumers, such as the risk of default, profit and administrative expenses.
When the Copom decreases the Selic, the tendency is for credit to become cheaper, with incentives for production and consumption, reducing control over inflation and stimulating economic activity.
GDP and exchange rate
For this year, the expectation of growth of the Gross Domestic Product (GDP) – the sum of all goods and services produced in the country – goes from 0.79%, last week, to 0.80%. For 2024, the financial market remained stable at 1.50%. For 2025, it revised its GDP growth expectation from 1.90% to 1.89%.
As for the projection for the dollar exchange rate for this year, the forecast is that the American currency will remain at R$ 5.27. For 2024 and 2025, the projection is BRL 5.26 and BRL 5.30, respectively.
