The financial market forecast for the growth of the Brazilian economy this year fell from 0.79% to 0.76%. The estimate is in today’s (13) Focus bulletin, a survey published weekly in Brasília by the Central Bank (BC) with projections for the main economic indicators.
For next year, the expectation for the Gross Domestic Product (GDP) – the sum of all goods and services produced in the country – is for growth of 1.5%, the same forecast for seven consecutive weeks. In 2025 and 2026, the financial market projects GDP growth of 1.85% and 2%, respectively.
The forecast for the Extended National Consumer Price Index (IPCA), considered the country’s official inflation, varied upwards, from 5.78% to 5.79% this year. For 2024, the inflation estimate was 4%. For 2025 and 2026, forecasts are 3.6% and 3.5%, respectively.
The forecast for 2023 is above the ceiling of the inflation target that must be pursued by the BC. Defined by the National Monetary Council (CMN), the target is 3.25% for this year, with a tolerance interval of 1.5 percentage points up or down. That is, the lower limit is 1.75% and the upper limit is 4.75%.
Likewise, the market’s projection for the 2024 inflation is also above the center of the predicted target – 3% – also with tolerance intervals of 1.5 percentage points.
Inflation
According to the Central Bank, the inflation it will only remain within the target from 2024, when it should be around 3%, and in 2025, (2.8%). For these two years, the CMN establishes a target of 3% for the IPCA.
In January, driven mainly by the increase in food and fuel prices, the IPCA was 0.53%, according to the Brazilian Institute of Geography and Statistics (IBGE).
Interest rate
To reach the inflation target, the Central Bank uses as its main instrument the basic interest rate, the Selic, set at 13.75% per year by the Monetary Policy Committee (Copom). The rate has been at this level since August last year and is the highest level since January 2017, when it was also at this level.
With projections for inflation above the targets for 2023 and 2024, the Central Bank predicts that interest rates may remain high for longer than expected. The autarchy does not rule out the possibility of further increases if inflation does not converge to the center of the target set by the CMN, as expected, in mid-2024.
For the financial market, the expectation is that the Selic will end the year at 12.75% per annum. By the end of 2024, the estimate is that the base rate will drop to 10% per annum. And for 2025, the forecast is for Selic at 9% per year.
heated demand
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.
The expectation for the dollar exchange rate is R$5.25 by the end of 2023. By the end of 2024, the forecast is that the US currency will be at R$5.30.
