19/05/2020

Focus: Market reduces projections for Selic and sees GDP shrink by 5.12% in 2020

Financial market sees Selic closing 2020 at 2.25% p.a., rising to 3.50% p.a. in 2021

SÃO PAULO – With the advance of the coronavirus in Brazil and weak data on the behavior of the Brazilian economy at this beginning of the year, with disappointing results in production, retail and the service sector, the financial market is working with the expectation of a larger-than-expected cut for Selic this year and less room for improvement in 2022.

According to the Focus report, released by the Central Bank on Monday morning (18), the Monetary Policy Committee (Copom) is expected to cut the Selic by 0.75 percentage points in the next meeting in June, taking the Selic from the current 3.00% to 2.25% per year – and remain at this level until December. In the last survey, interest rates were expected to close out the year at 2.50%.

For 2022, projections for the Selic were also reduced, from 5.50% to 5.25% per year, while estimates for 2021 were maintained at 3.50% at the end of the year.

Amidst the fragility of Brazilian activity, expectations for inflation and growth in the country’s economy were also reduced again.

The median of projections for the performance of the Brazilian Gross Domestic Product (GDP) fell for the 14th consecutive time, encompassing an even more pessimistic view this year. Economists now see the Brazilian economy shrink by 5.12% in 2020, compared to previous expectations of a 4.11% contraction.

For 2021, the market maintained the estimated growth of 3.20% in activity.

For the Broad National Consumer Price Index (IPCA), the upward projection was cut for the tenth consecutive time, this time from 1.76% to 1.59% in 2020. There was also an adjustment in the 2021 inflation projection, from 3.25% to 3.20%.

With regard to the exchange rate forecasts, the Focus report revealed that the estimate for the dollar this year rose from R$ 5.00 to R$ 5.28, with an increase from R$ 4.83 to R$ 5.00 in 2021.

Top 5

Among the most accurate economists, gathered in the “Top 5” category of the Focus report, there were revisions in the estimates for inflation, Selic and exchange.

According to the Central Bank report, the “Top 5 medium term” group sees the basic interest rate closing this year at 2.25% per year, compared to the estimate of 2.50% per year in the last week. The projection for 2021, in turn, was reduced from 3.88% to 3.50% per year.

In relation to inflation as measured by the Broad Consumer Price Index (IPCA), the high projection was reduced from 1.97% to 1.61% and maintained at 3.00% in 2021.

Expectations for the dollar rose from R$ 5.35 to R$ 5.50 in 2020 and from R$ 5.30 to R$ 5.40 in 2021.

Author: Mariana d'Ávila Source InfoMoney