The financial market’s forecast for the Broad National Consumer Price Index (IPCA) – considered the country’s official inflation rate – increased from 4.12% to 4.2% this year. The estimate is in the Focus Bulletin this Monday (12), a survey released weekly by the Central Bank (BC) with the expectations of financial institutions for the main economic indicators.
For 2025, the inflation projection varied from 3.98% to 3.97%. For 2026 and 2027, the forecasts are 3.6% and 3.5%, respectively.
The estimate for 2024 is above the inflation target, but still within tolerance, which should be pursued by the Central Bank. Defined by the National Monetary Council (CMN), the target is 3% for this year, with a tolerance range of 1.5 percentage points above or below. In other words, the lower limit is 1.5% and the upper limit is 4.5%.
From 2025, the following will come into force: continuous target systemthus, the CMN no longer needs to set an inflation target each year. The board set the center of continuous target at 3%with a tolerance margin of 1.5 percentage points up or down.
In July, driven mainly by the price of gasoline, plane tickets and electricity, the country’s inflation was 0.38%after having registered 0.21% in June. According to the Brazilian Institute of Geography and Statistics (IBGE), in 12 months, the IPCA accumulated 4.5%, at the upper limit of the inflation target.
Basic interest
To achieve the inflation target, the Central Bank uses as its main instrument: basic interest rate, the Selicset at 10.5% per year by the Monetary Policy Committee (Copom). Faced with a adverse external environment and the increase in economic uncertainties, at the last meeting at the end of July, the BC decided to maintain the Selic, for the second time in a row, after a cycle of seven reductions that went from August 2023 to May 2024.
From March 2021 to August 2022, Copom raised the Selic rate 12 times in a row, in a monetary tightening cycle that began amid rising food, energy and fuel prices. For one year, from August 2022 to August 2023, the rate was maintained at 13.75% per year, for seven consecutive meetings. With price control, the Central Bank began to cut the Selic rate.
Before the start of the upward cycle in March 2021, the Selic rate had been reduced to 2% per year, the lowest level in the historical series that began in 1986. Due to the economic contraction caused by the COVID-19 pandemic, the Central Bank had lowered the rate to stimulate production and consumption. The index was at its lowest level in history from August 2020 to March 2021.
For the financial market, the Selic rate should end 2024 at its current level, at 10.5% per year. By the end of 2025, the estimate is that the base rate will fall to 9.75% per year. For 2026 and 2027, the forecast is that it will be reduced again, to 9% per year, for both years.
When Copom increases the basic interest rate, the aim is to curb heated demand, and this has an impact on prices because higher interest rates make credit more expensive and encourage savings. However, in addition to the Selic rate, banks consider other factors when setting the interest rates charged to consumers, such as default risk, profits and administrative expenses. Therefore, higher rates can also hinder economic growth.
When Copom reduces the Selic rate, the tendency is for credit to become cheaper, encouraging production and consumption, reducing control over inflation and stimulating economic activity.
GDP and exchange rate
Financial institutions’ projection for Brazilian economic growth this year remained at 2.2%. For 2025, the expectation for Gross Domestic Product (GDP) – the sum of all goods and services produced in the country – is growth of 1.92%. For 2026 and 2027, the financial market estimates GDP growth of 2% for both years.
Exceeding projections, in 2023 the Brazilian economy grew 2.9%, with a total value of R$10.9 trillion, according to the IBGE. In 2022, the growth rate was 3%.
The dollar is expected to be worth R$5.30 by the end of this year. At the end of 2025, the US currency is expected to be at the same level.
