Financial institutions, consulted by the Central Bank (BC), are no longer waiting for an increase in the Selic interest rate this year. The forecast for the rate at the end of 2019 went from 7% to 6.5% per year, the current Selic level.

By 2020, however, the financial market projects an increase in the Selic, with the rate ending the period at 8% per year. These projections are in the Focus Bulletin, a weekly survey of BC made to financial institutions on key economic indicators.

The first meeting of this year's Central Bank Monetary Policy Committee (Copom), responsible for defining the Selic, begins tomorrow (Feb 5).

The Copom meets every 45 days. On the first day of the meeting, technical presentations on the evolution and perspectives of the Brazilian and world economies and the behavior of the financial market are made. On the second day, members of the Copom, formed by the BC's board, define the Selic.

The Central Bank operates daily through open market operations - buying and selling federal government bonds - to keep the interest rate close to the value defined at the meeting.

The Selic, which serves as a reference for the other interest rates of the economy, is the average rate charged in negotiations with securities issued by the National Treasury, recorded daily in the Special Settlement and Custody System (Selic).

The maintenance of the Selic, as the financial market predicts, indicates that the Copom considers the previous changes in basic interest rates sufficient to reach the inflation target, an objective that should be pursued by the Central Bank.

By reducing core interest rates, the trend is to lower credit costs and encourage production and consumption. However, interest rates on credit do not fall in the same proportion as the Selic rate. According to the BC, this is because the Selic is only part of the cost of credit.

To cut the Selic, the monetary authority needs to be sure that prices are under control and are not at risk of getting above the inflation target. When the Copom increases the Selic, the objective is to contain the heated demand, and this causes price reflections because higher interest rates increase credit and stimulate savings.

Inflation

This year's inflation target, defined by the National Monetary Council, is 4.25%, with a tolerance interval of 2.75% and 5.75%. For the financial market, inflation should remain at 3.94% this year. Last week, the estimate was at 4%. By 2020, the IPCA is expected to stay at the target by 4%. The value for the next year has a tolerance interval of 1.5 percentage points up or down.

The projection for the expansion of the Gross Domestic Product (GDP) - the sum of all goods and services produced in the country - was maintained at 2,50% in 2019 and 2020.

The financial market forecast for the US dollar exchange rate went from R $ 3.75 to R $ 3.70 at the end of this year, and from R $ 3.78 to R $ 3.75 at the end of 2020.