The financial market continues to revise the estimate of a slump in the economy this year. For the 14th week in a row, the financial market's expectation for the decline in the Gross Domestic Product (GDP) - the sum of all goods and services produced in the country, worsened. This time, the drop forecast went from 4.11% to 5.12%.

The estimate appears in the Focus bulletin, published weekly by the Central Bank (BC), with the projection for the main economic indicators.

The forecast for GDP growth in 2021 remains at 3.20% and for 2022 and 2023 remains at 2.50%.

Dollar

The dollar rate should close the year at R $ 5.28. Last week, the forecast was R $ 5. For 2021, the expectation is that the American currency will stay at R $ 5, against R $ 4.83 last week.

Inflation

The financial institutions consulted by the BC continue to reduce the inflation forecast for 2020. The projection for the Broad National Consumer Price Index (IPCA) fell for the tenth consecutive time, from 1.76% to 1.59%.

For 2021, the inflation estimate was also reduced, from 3.25% to 3.20%. The forecast for the following years - 2022 and 2023 - has not changed and remains at 3.50%.

The projection for 2020 is below the inflation target that should be pursued by the Central Bank. The target, defined by the National Monetary Council, is 4% in 2020, with a tolerance range of 1.5 percentage points up or down. That is, the lower limit is 2.5% and the upper limit, 5.5%.

For 2021, the target is 3.75% and for 2022, 3.50%, also with an interval of 1.5 percentage points each year.

Selic

To reach the inflation target, the Central Bank uses the basic interest rate, the Selic, as its main instrument, currently set at 3% per year by the Monetary Policy Committee (Copom).

For the financial market, the expectation is that the Selic will end 2020 at 2.25% per year. The previous forecast was 2.50% per year.

When the Copom reduces the Selic rate, the tendency is for credit to become cheaper, with incentives for production and consumption, reducing inflation control and stimulating economic activity. When the Copom raises the basic interest rate, the objective is to contain heated demand, and this causes reflections on prices because higher interest rates make credit more expensive and stimulate savings.

By the end of 2021, the basic rate is expected to reach 3.50% per year. For the end of 2022, the institutions reduced the forecast from 5.50% per year to 5.25% per year and, for the end of 2023, the estimate remains at 6% per year.