Given the uncertainties surrounding the impact of the coronavirus outbreak on global activity, the expected economic growth in 2020 fell from 2.17% to 1.99%
The Focus Market Report, released this Monday (9) by the Central Bank (BC), shows that the expectation of economic growth fell from 2.17% to 1.99% in 2020. Four weeks ago, the estimate was 2.30%.
The projection for Gross Domestic Product (GDP) growth—the sum of all goods and services produced in the country—fell in 2020, from 2.17% to 1.99%. This was the fourth consecutive decline. Financial institutions' estimates for the coming years—2021, 2022, and 2023—remain at 2.50%.
Inflation
Financial institutions consulted by the Central Bank (BC) increased their inflation projections and reduced their estimates for the country's economic growth.
The Broad National Consumer Price Index (IPCA) estimated inflation from 3.19% to 3.20%. The information is contained in the Focus bulletin, a weekly survey by the Central Bank that brings institutions' projections for the main economic indicators.
For 2021, the inflation estimate remains at 3.75%. The forecast for the following years also remained unchanged: 3.50% in 2022 and 2023.
The target, set by the National Monetary Council, is 4% in 2020.
For 2020, the projection is below the inflation target center, which the Central Bank should pursue. The target, set by the National Monetary Council, is 4% for that year. The tolerance range for each year is 1.5 percentage points above or below. This indicates that in 2020, the minimum inflation target limit is 2.5% and the maximum, 5.5%.
BC Strategy
The Central Bank uses the benchmark interest rate as its main instrument to achieve its inflation target. The Selic, currently at 4.25% this year, is expected to remain unchanged until the end of the year for the financial market. In 2021, the benchmark rate is expected to rise, reaching 5.5% at the end of the period. Last week, the forecast was 5.75% per year by the end of 2021. For the end of 2022 and 2023, the forecast was maintained at 6.5% per year.
When the Monetary Policy Committee (Copom) reduces the Selic rate, credit tends to become cheaper, which encourages production and consumption, reducing inflation control and stimulating economic activity.
When Copom raises the benchmark interest rate, it aims to curb heated demand. This impacts prices. Higher interest rates make credit more expensive and encourage savings.
Maintaining the Selic rate indicates that Copom considers the previous changes sufficient to reach the inflation target.
Dollar
The financial market continues to forecast the dollar exchange rate at R$ 4.20 by the end of the year. It rose from R$ 4.15 to R$ 4.20 by the end of 2021.