Financial market forecasts economic decline by 5.95% this year

The financial market forecast for the fall of the Brazilian economy this year was adjusted from 6.10% to 5.95%. The estimated decline in Gross Domestic Product (GDP) - the sum of all goods and services produced in the country - is in the Focus newsletter, published every week by the Central Bank (BC), with the projection for the main economic indicators.
For next year, the expectation is for growth of 3.50%, the same forecast for eight consecutive weeks. In 2022 and 2023, the financial market continues to project expansion of 2.50% of GDP.
The financial institutions consulted by bc maintained the projection for the National Broad Consumer Price Index (IPCA) at 1.72% this year. For 2021, the inflation estimate remains at 3%, for five consecutive weeks. The forecast for 2022 and 2023 also did not change: 3.50% and 3.25%, respectively.
The projection for 2020 is below the floor of the inflation target that should be pursued by bc. The target, set by the National Monetary Council, is 4% in 2020, with a tolerance interval of 1.5 percentage points up or down. That is, the lower limit is 2.5% and the upper limit is 5.5%.
For 2021, the target is 3.75%, for 2022, 3.50%, and for 2023, 3.25%, with a range of 1.5 percentage points up or down each year.
To reach the inflation target, the Central Bank uses as its main instrument the basic interest rate, Selic, currently established at 2.25% per year by the Monetary Policy Committee (Copom). For the financial market, selic is expected to end 2020 at 2% per year. By the end of 2021, the basic rate is expected to reach 3% per year. By the end of 2022, the forecast is 5% per year and for the end of 2023, 6% per year.
When Copom reduces Selic, the trend is for credit to become cheaper, encouraging production and consumption, reducing inflation control and stimulating economic activity. However, banks consider other factors when defining the interest charged to consumers, such as risk of default, profit and administrative expenses.
When Copom increases the basic interest rate, the goal is to contain the heated demand, and this causes reflections in prices because higher interest rates increase credit and stimulate savings.
The forecast for the price of the dollar remains at R$ 5.20 at the end of this year. By the end of 2021, the expectation is that the U.S. currency will be R$ 5.