RIO DE JANEIRO, BRAZIL – The financial market raised the projection for the benchmark interest rate at the end of 2022, after the Central Bank adopted tougher language when deciding last week to raise the Selic rate again, while inflation expectations improved or stopped worsening after a long series of hikes.
According to the latest Central Bank Focus survey — the Central Bank’s weekly survey of financial institution analysts — released every Monday, the forecast for the economy’s basic interest rate in 2022 rose to 11.50% a year, from 11.25% in the previous week’s document.
On Wednesday, the Central Bank raised the Selic rate by 1.50 percentage points to 9.25% per year, and indicated a new increase of the same magnitude for February, and highlighted in a communiqué the importance of the tightening cycle advancing “significantly” in the contractionary territory to consolidate the disinflation process and anchor expectations around the targets.
The more assertive tone surprised much of the market, resulting from worse economic activity data. The IBGE released a lower-than-expected November IPCA with a better composition two days later.
The inflation measures projected by analysts for Focus has improved.
The number expected for 2021 dropped from 10.18% to 10.05% — the first drop after 35 consecutive weeks of rises. The measure for 2022 remained at 5.02%, stopping its rise after 20 straight weeks on the rise.
The projection for 12 months fell from 5.36% to 5.21%, while the rate for 2023 retreated from 3.50% to 3.46%. The IPCA expected for 2024 decreased slightly, from 3.10% to 3.09%. However, all the annual projections for 2021 to 2024 remain above the targets for the respective years – 3.75%, 3.50%, 3.25%, and 3.00%.
The economy suffers in a scenario of still pressured inflation and higher interest rates. The forecast for GDP growth in 2021 retreated for the ninth consecutive week, dropping from 4.71% to 4.65%. The expected rate for 2022 was lower for the tenth consecutive week, although only slightly – from 0.51% to 0.50%.