The financial market forecast for the Broad National Consumer Price Index (IPCA) this year rose from 4.71% to 4.81%. The estimate is in today's Focus bulletin (29), a survey released weekly in Brasilia by the Central Bank (BC), with the projection for the main economic indicators.

For 2022, the inflation estimate is 3.51%. For both 2023 and 2024, the forecasts are 3.25%.

The calculation for 2021 is above the center of the inflation target that should be pursued by the Central Bank. The target, defined by the National Monetary Council, is 3.75% for this year, with a tolerance interval of 1.5 percentage points up or down. That is, the lower limit is 2.25% and the upper limit is 5.25%.

Interest rate 

To reach the inflation target, the Central Bank uses the basic interest rate, the Selic, as its main instrument, currently set at 2.75% per year by the Monetary Policy Committee (Copom).

For the financial market, the expectation is that the Selic will end 2021 at 5% per year. By the end of 2022, the basic rate is estimated to rise to 6% per year. And for the end of 2023 and 2024, the forecast is 6.50% per year and 6.38% per year, respectively.

When the Copom raises the basic interest rate, the purpose is to contain heated demand, and this causes reflections in prices because higher interest rates make credit more expensive and stimulate savings. In this way, higher rates may make it difficult for the economy to recover. In addition, banks consider other factors when defining the interest charged to consumers, such as default risk, profit and administrative expenses.

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.

GDP and foreign exchange 

The financial institutions consulted by the BC reduced the projection for the growth of the Brazilian economy this year from 3.22% to 3.18%. For next year, the expectation for Gross Domestic Product (GDP) - the sum of all goods and services produced in the country - is 2.34% growth. In 2023 and 2024, the financial market projects a 2.50% GDP expansion.

The expectation for the dollar rate rose from R $ 5.30 to R$ 5.33 at the end of this year. By the end of 2022, the forecast is that the American currency will remain at R$ 5.26.