BRAZIL: Central Bank's Inflation Estimate For 2017 Drops To 2.8%

The Brazilian Central Bank’s Quarterly Inflation Report revised downward projections for inflation for this and next year, reinforcing the analysis of market investors that the monetary authority still has room for cuts in the basic interest rate, known as Selic.

In the reference scenario, which considers the projection for the interest rate of the Focus survey at a constant exchange rate of R$ 3.30 – above the R$ 3.10 in September’s report – throughout the forecast horizon, the projection for inflation fell to 2.8%, from 3.2%. For 2018, the estimate remained at 4.1%. According to the document, inflation should reach 4.0% by the end of 2019, and would close 2020 at 3.9%.

In this scenario, the probability of inflation breaking the target ceiling this year is zero, while the odds to break the floor of the target is 90%. Regarding 2018, the probability is 8% in the first case and around 21% in the case of the target floor.

In the market scenario, which considers interest and exchange projections for the Focus survey, inflation projections also fell from 3.2% to 2.8% at the end of 2017 and from 4.3% to 4.2% at the end of 2018.

The Central Bank also stressed that “a frustration of the expectations about the continuity of the necessary reforms and adjustments in the Brazilian economy can affect risk premiums and elevate the trajectory of inflation in the relevant horizon for the monetary policy.”

The material has been provided by InstaForex Company – www.instaforex.com