Financial market forecasts 8.75% benchmark interest rate in 2021

Faced with the surge in inflation, the financial market expects Brazil’s benchmark interest rate—the Selic—to close out 2021 at 8.76 percent a year. The previous estimate was 8.25 percent a year, as per today’s (Oct. 25) Focus report, which projections for all major economic indicators.

The Selic has been set by the Central Bank’s Monetary Policy Committee 6.25 percent a year. This week, its members are meeting again and are expected to repeat the increases made in the last five assemblies. The rate is at its highest since July 2019, when it was 6.5 percent a year. The Selic is the Central Bank’s main tool for reaching the target established for the inflation.

Inflation

The estimate made by financial institutions for the National Broad Consumer Price Index (IPCA)—Brazil’s official inflation—went up from 8.69 to 8.96 percent. This is the 29th consecutive time the projection is revised upwards.

The forecast for this year is above the target of the inflation that should be pursued by the Central Bank, which is 3.75 percent, with a tolerance margin of 1.5 percentage points up or down. In other words, the bottom limit is 2.25 percent, the upper limit is 5.25 percent.

GDP and the dollar

The prediction of the financial market for the growth of the economy this year slipped from 5.01 to 4.97 percent.  For the dollar exchange rate, the expectation for this year mounted from R$ 5.25 to R$ 5.45.