Financial markets in Brazil raise projection for Selic to 11.75% in December 2022 -Focus report

RIO DE JANEIRO, BRAZIL – The financial market has raised its forecasts for the Selic rate this year from 11.50% to 11.75%. This is according to the Focus report published by the Central Bank this morning (10).

The Monetary Policy Committee (Copom) is expected to raise the key interest rate by 1.5 percentage points from the current 9.25% to 10.75% per year at its next meeting in February. For 2023, the market expects a Selic rate of 8%

The new projections come amid an environment of intense inflationary pressure. Economists consulted by the monetary authority now estimate an inflation rate of 9.99% in 2021, against expectations of 10.01% previously.

The December National Wide Consumer Price Index (IPCA) will be released on Tuesday (11). Bradesco expects a high of 0.63% on a monthly basis, while Itaú foresees a high of 0.68%, which would bring the IPCA for 2021 to 10.01%.

Market analysts point out that after the release of the IPCA, the Central Bank may publish an open letter to the Minister of Economy explaining the reasons for inflation being above the target in 2021 and may list measures to guarantee the return of inflation to the limits established now in 2022.

For this year, the projections for inflation remain at 5.03%, while for 2023, the median of market expectations points to a high of 3.36%, below the previously projected 3.41%.

With regard to the performance of an economic activity, the Focus points to a 4.50% expansion of the Gross Domestic Product (GDP) in 2021 – the same as expected in the previous survey. By 2022, economists have reduced their projections for the growth of the Brazilian economy from 0.36% to 0.28%.

For 2023, estimates are for a 1.70% expansion of activity, below the 1.80% projected in the last survey.

Finally, for foreign exchange, expectations for 2022 were maintained at a dollar negotiated at R$ 5.60 but increased from R$ 5.40 to R$ 5.45 in 2023.