Brasília, March 22, 2004 (Agência Brasil) - The financial market's expectations for the future of the economy indicate a rise in inflation and a more modest reduction in the prime rate (Selic) this year. The forecast for the Broad Consumer Price Index (IPCA), which determines official adjustments, increased from 5.95% last week to 6%, according to the Focus Bulletin, distributed today by the Central Bank (BC).
The outlook at the beginning of the month was thus reassumed, reflecting variations detected in studies of wholesale prices, which experienced larger adjustments than they did in the month of February. As a result, predictions for the General Price Index - Internal Supply (IGP-DI) and the General Price Index - Market (IGP-M) were raised from 7.17% and 7.38% to 7.34% and 7.50%, respectively. Estimates for both have jumped around one percentage point this month.
In light of the decision made last week by the Monetary Policy Committee (Copom) to reduce the prime rate by a mere 0.25%, the consultants and financial analysts surveyed by the BC demonstrated greater pessimism about prospects for lower interest rates. At the beginning of March, they bet on an annual rate of 13.75% by the end of 2004. But, considering the halt in the process of lowering the Selic in January and February, they raised their forecast to 13.84%, last week, and 14%, in the most recent poll.
The outlook is brighter, however, when it comes to the trade balance, which has been sustaining the positive performance achieved in 2003. For this reason, the probability that last year's US$ 24.8 billion surplus will be repeated grows each week. Expectations for the annual surplus began the month at US$ 20.9 billion, rose to US$ 23 billion last week, and now stand at US$ 23.15 billion.
This performance has had a positive impact, as well, on estimates for the current account surplus. At the beginning of the year, the market predicted that there would be a US$ 4 billion deficit this year, reversing the surplus in 2003, after 12 consecutive years of deficits. However, the good performance of the trade balance cancelled the expectation of a negative balance, last week, and the forecast registered in the most recent poll is for a US$ 330 million surplus at the end of the year.
On the other hand, there was a dip in the projection for foreign direct investments, as a consequence of political factors extraneous to the market. The expectation for the flow of outside resources into the domestic productive sector fell from US$ 12.5 billion to US$ 12.10 billion. The forecast for the growth in the Gross Domestic Product (GDP) is gradually declining. It was 3.70% at the beginning of the month and fell last week to 3.56%, where it remains. All of this in a setting in which the year-end exchange rate does not exceed R$ 3.05.
Translator: David Silberstein
