The financial market forecast for the Extended National Consumer Price Index (IPCA) – considered the country’s official inflation – went from 5.31% last week to 5.36% this Monday (9). For 2024 and 2025, projections are for inflation at 3.7% and 3.3%, respectively.
The estimates are included in the 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 the highest level since January 2017, when it was at the same 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 first meeting of the year. By the end of the year, the estimate is that the base rate will drop to 12.25% per annum – the same estimate as last week. As for 2024 and 2025, the market forecast is that the Selic will remain at 9.25% 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 0.80%, last week, to 0.78%. For 2024, the financial market maintained the expectation of economic growth at 1.5%. For 2025, the estimate was 1.90%.
The projection for the dollar exchange rate for this year was R$ 5.28. For 2024 and 2025, the projection is that the currency will remain at R$ 5.30.
