Focus Bulletin: Market Forecasts for 7% Inflation

The financial market’s expectations of inflation in 2021 at 7% for the first time in this year was unprecedented. This was the 19th highest projection for the IPCA (Broad Consumer Price Index). The forecast was at 6.31% a month ago.

These numbers come from the Focus Bulletin of the Central Bank, (BC), which was released Monday (16). This document contains the estimates from more than 100 financial institutions regarding the major economic indicators.

Analysts have increased the base interest rate estimate from 7.25% to 7.5% annually due to the steady rise in inflation projections.

The National Monetary Council (CMN) has set an inflation target that the IPCA shouldn’t exceed 5.25% for this year. While the target center is at 3.75%, the 1.5 percentage points tolerance margin allows for the index to fluctuate between 2.25% and 5.25%.

Selic is the main instrument of inflation control by the monetary authority. The current rate is at 5.25 percent pa. This follows a 1 point increase at the previous meeting in which the BC indicated that the upward trend in interest rates would continue.

Economic growth

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After weeks of improvement, the outlook for the financial markets for this year’s economy declined slightly to 5.30% from 5.28%.

The GDP (Gross Domestic Products) growth forecast for 2022 has increased to 2.04% from 2.1% four weeks prior