Market raises inflation forecast and sees highest interest rate in 2021 – Prime Time Zone


Central Bank sources raise the IPCA estimate to 6.11% and see Selic at 6.63%; GDP and exchange rate projections are also changed upwards

Brazil Archive/AgencyMarket projects higher Selic in 2021 and 2022 amid rising inflation to above the target ceiling

The financial market once again raised the prospects for the inflation, the interest rate, the economic recovery and the exchange rate in 2021, according to data from Focus Bulletin released this Monday, 12. The median of the Central Bank survey carried out with more than 100 financial institutions pointed to an increase of 6.11% of the Broad Consumer Price Index (IPCA), the official indicator of Brazilian inflation. This is the 14th week following the elevation of the projection. Last week, the forecast pointed to an advance of 6.07%. The BC pursues the inflation target of 3.75%, with a margin of 1.5 percentage points up or down, that is, between 2.25% and 5.25%. The index was at 8.35% in the 12 months ended in June, when it registered an increase of 0.53%. The expectation for the 2022 inflation suffered a slight drop, from 3.77% to 3.75%. The target for the IPCA next year is 3.50%, with a variation between 2% and 5%.

O central bank has already abandoned the expectation of closing 2021 below the target ceiling. The estimate published in the inflation report for the second quarter points to an increase of 5.8% in view of the increase in prices. commodities and the recent pressure from electricity. According to the president of the monetary authority, Roberto Campos Neto, inflation has spread through the economic chain, but the pressures are still temporary in nature. The advance of inflation made market analysts review the Selic, BC’s main tool to contain price variation, rising from 6.50% to 6.63% in 2021, and 6.75% to 7% in 2022. The Monetary Policy Committee (Copom) added 0.75 percentage point to the interest rate in June, raising the Selic rate to 4.25% a year. The collegiate said it should make another increase of the same magnitude in August, but “left the door open” for a higher increase, estimated by the market at 1 percentage point.

The estimate with the Gross Domestic Product (GDP) was also revised upwards, up 5.26%, compared to 5.18% estimated last week. The forecast for 2022 was changed slightly, from 2.10% to 2.09%. The median for the exchange rate also suffered a slight change, from R$ 5.04 last week to R$ 5.05. O dollar resumed its upward trajectory in early July amid the resurgence of the political environment in Brasília. Since the 1st, the North American currency was again traded at above R$ 5. The exchange rate operates unstable this Monday, at R$ 5.24.