The financial market forecast for this year's Broad Consumer Price Index (IPCA - the country's official inflation) rose from 2.05% to 2.12%. The estimate is in today's Focus bulletin (5), a publication released every week by the Central Bank (BC) with the projection for the main economic indicators.

For 2021, the inflation estimate ranges from 3.01% to 3%. The forecast for 2022 and 2023 did not change: 3.50% and 3.25%, respectively.

The calculation for 2020 is below the floor of 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 interval 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%, for 2022, 3.50%, and for 2023, 3.25%, with a range of 1.5 percentage points up or down each year.

Basic interest 

To reach the inflation target, the Central Bank uses the basic interest rate, the Selic, as its main instrument, currently set at 2% per year by the BC's Monetary Policy Committee (Copom).

For the financial market, the expectation is that the Selic will end 2020 at 2% per year. By the end of 2021, the basic rate is expected to reach 2.5% per year. For the end of 2022, the forecast is 4.5% per year and for the end of 2023, 5.5% per year.

When the Copom reduces the Selic rate, the tendency is for credit to become cheaper, with incentives for production and consumption, reducing the control of inflation and stimulating economic activity. However, banks consider other factors when defining the interest charged to consumers, such as default risk, profit and administrative expenses.

When the Copom raises the basic interest rate, the objective is to contain heated demand, and this causes reflections in prices because higher interest rates make credit more expensive and stimulate savings.

GDP and dollar 

The financial institutions consulted by the BC adjusted the projection for the fall of the Brazilian economy this year from 5.04% to 5.02%. For next year, the expectation for Gross Domestic Product (GDP) - the sum of all goods and services produced in the country - is for growth of 3.50%, the same forecast for 19 consecutive weeks. In 2022 and 2023, the financial market continues to project GDP growth of 2.50%.

The forecast for the dollar exchange rate remains at R $ 5.25, at the end of this year. By the end of 2021, the expectation is that the American currency will remain at R$ 5.