The estimate of financial institutions for inflation this year fell for the third time in a row. According to a survey by the Central Bank (BC), released today (12), in Brasilia, the Broad Consumer Price Index (IPCA) is expected to remain at 4.23%. Last week, the projection was at 4.40%.

For 2019, the projection of inflation was adjusted from 4.22% to 4.21%. There was no change in the estimate for 2020: 4%. For 2021, it went from 3.97% to 3.95%.

The inflation target, which should be pursued by the Central Bank, is 4.5% this year. This goal has a lower limit of 3% and a higher limit of 6%. For 2019, the target is 4.25% with a tolerance interval of 2.75% and 5.75%.

For 2020, the target is 4% and 2021, 3.75%, with a tolerance interval of 1.5 percentage points for the two years (2.5% to 5.5% and 2.25% to 5.25 %, respectively).

Basic interest rate

To reach the inflation target, the Central Bank uses the basic interest rate, Selic, currently at 6.5% per annum.

According to the financial market, the Selic should remain at 6.5% per year until the end of 2018.

For 2019, the expectation is to increase the base rate, ending the period at 8% per year and remaining at that level in 2020 and 2021.

When the Monetary Policy Committee (Copom) increases the Selic, the purpose is to contain heated demand, and this causes price spillovers because higher interest rates increase credit and stimulate savings.

When the Copom reduces the Selic, the tendency is for credit to become cheaper, with incentives for production and consumption, reducing control of inflation.

The maintenance of the basic interest rate, as the financial market predicts this year, indicates that the Copom considers the previous changes sufficient to reach the inflation target.

Economic growth

Financial institutions maintained the estimate for Gross Domestic Product (GDP), the sum of all goods and services produced in the country, 1.36% in 2018, and 2.50% over the next three years.

Exchange

The expectation for the US dollar exchange rate is R $ 3.70 at the end of this year, from R $ 3.80 to R $ 3.76 at the end of 2019.