Market sees Selic in double digits in 2022 for the first time, and inflation above 9% in 2021

Even with the most incisive rise in interest rates, the financial market forecast for the Broad Consumer Price Index (IPCA), the country’s official inflation, reached 9.17% for this year and 4.55% in 2022.

A month ago, estimates were 8.51% and 4.14%, respectively. It was the thirtieth consecutive high for the 2021 estimate, but the first time that the level is above 9%.

The numbers are from the Focus Bulletin of the Central Bank (BC), released this Monday (1). The document brings together the estimates of more than 100 financial market institutions for the main economic indicators.

According to the inflation target set by the National Monetary Council (CMN), the IPCA should not exceed 5.25% this year. The target center is 3.75%, however, the 1.5 percentage point tolerance margin up or down allows the index to vary from 2.25% to 5.25%.

With the pace of inflationary pressure and the increase in tax risks, the market also raises expectations for the basic interest rate. Selic is the monetary authority’s main tool for controlling inflation. Analysts estimate that the Selic should end 2021 at 9.25% per year.

The rate is also expected to reach 10.25% pa in 2022. It is the first time that the forecast for the base rate for next year is above double digits.

Currently, the rate is at 7.75% pa, after a meeting of the Monetary Policy Committee (Copom) last week.

While expectations for inflation for this and next year advance, projections for economic growth in both periods are falling.

The average of financial agents’ forecasts for the Gross Domestic Product (GDP) 2021 dropped to 4.94%. For 2022, an increase of 1.20% is expected in economic activity.