Citi raises dollar projection to BRL 5.59 next year

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Citi raised its forecast for the dollar level at the end of next year, expecting the currency to stay at BRL 5.59, amid challenges both domestically and internationally. In October, the private bank projected an exchange rate of R$ 5.49 per dollar. The dollar in cash was traded at around R$5.62 this Wednesday (1st).

“The government continues to negotiate a legislative solution to increase public spending in 2022, and regardless of which final agreement will allow this to happen, some form of fiscal relaxation seems inevitable,” said Citi economists.

“Meanwhile, the global scenario is likely to continue to become less benign for emerging markets, owing to a slowdown in growth, stabilization in commodity prices and likely sooner than expected normalization of US monetary policy.”

By the end of 2021, Citi expects the dollar to stand at R$5.56. In October, the private bank projected an exchange rate of R$ 5.47 per dollar at the end of this year.

Inflation

Citi also raised its forecasts for consumer inflation and the level of the dollar against the real in 2022, warning of the persistence of domestic political-fiscal uncertainties and a more adverse international scenario.

Now, the private lender expects the IPCA to rise 4.7% in 2022, a level very close to the ceiling of the tolerance band for the rise in prices next year (5.0%). The target for the 2022 IPCA is ​3.50%, with a tolerance margin of 1.5 percentage points more or less.

Less than a month ago, Citi projected an increase of 4.3% in consumer prices next year, although it had already warned of high risks for the account.

Expectations of the weakening of the real, persistence of high electricity costs and the possibility of greater price inertia next year are among the reasons that justify the revision, according to Citi.

Furthermore, “recent increases in long-term inflation expectations beyond the target center strengthen arguments that current significant price shocks may have more permanent effects on inflation dynamics ahead,” wrote Citi economists Thais Ortega, Paulo Lopes and Leonardo Porto de Almeida.

The most recent Focus survey of the Central Bank with economists, published on Monday (29), shows expectations of a 3.42% increase in the IPCA in 2023 and 3.10% in 2024. The targets for these years are, respectively , 3.25% and 3.00%.

For this year, Citi maintained its expectation of a 10.4% increase in the IPCA.

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