Brazil's financial market revises 2016 inflation outlook downward

Financial analysts’ forecast for this year’s inflation as gauged by the Broad National Consumer Price Index (IPCA) has been lowered from 7.28% to 7.14%. This has been the fifth consecutive downward revision. The target set by the government for inflation in 2016 and 2017 is 4.5%.

For 2017, the projected rate dropped from 6% to 5.95%, which is still above the target, but within the target ceiling of 6%.

The estimates are part of the Focus Market Readout, a report published by the Central Bank (BC) every Monday based on projections from financial institutions for the main economic indicators.

The financial analysts have forecast a decline in Gross Domestic Product (GDP) this year for the twelfth consecutive week. The projection was revised from -3.73% to -3.77%. For 2017, Brazil’s economy is expected to grow 0.30%, the same projection as last week’s.

In a scenario of economic downturn, financial institutions expect the Central Bank to lower the interest rate (SELIC) this year. The Central Bank rate is expected to close out 2016 at 13.75% per annum, down from the current 14.25% p.a. By the end of 2017, the interest rate is expected to stand at 12.25% p.a.

The SELIC rate is used for trading government securities under the Central Bank’s Special System of Settlement and Custody (SELIC) and provides a benchmark for other interest rates in the market.

Translated by Mayra Borges

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