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Economic activity increased by 0.44% in July

Over the 12 months the IBC-Br was positive at 3.12%, being the second consecutive month of increase in the indicator

Brazilian economic activity increased in July this year, according to information released this Tuesday (19th) by the Central Bank (BC). The Central Bank’s index of economic activity (IBC-Br) increased by 0.44% in July compared to the previous month, according to seasonally adjusted (period-adjusted) data.

In July the IBC-Br reached 150.94 points. In the comparison with the same month of 2022, a growth of 0.66% was recorded (without period adjustment, since the comparison is between equal months). Even in the twelve months the indicator was positive at 3.12%. It was the second consecutive month of increase in the indicator, after the decline in May.

The IBC-Br is a way to evaluate the evolution of the country’s economic activity and helps the BC make decisions on the base interest rate, the Selic, currently set at 13.25% per annum. The index incorporates information on the level of activity in the sectors of the economy – industry, trade and services and agriculture -, as well as the volume of taxes.

Base rate

Selic is the CB’s main tool for achieving the inflation target. When Copom raises the base interest rate, the aim is to contain overheated demand, and this has an impact on prices because higher interest rates make credit more expensive and encourage saving. Therefore, higher rates help reduce inflation, but they can also hinder the expansion of the economy.

Faced with the sharp decline in inflation, the Monetary Policy Committee (Copom) of the BC started, last month, a cycle of reduction of the Selic, which should stimulate productive activity.

The last time the BC had reduced the Selic was in August 2020, when the rate fell from 2.25% to 2% annually, amid the economic contraction generated by the covid-19 pandemic. Subsequently, Copom increased the Selic rate 12 consecutive times, in a cycle that began in March 2021, in a context of rising food, energy and fuel prices, and, since August last year, has kept the rate at 13 .75% per year for seven consecutive times.

Today and tomorrow (20th), the Copom meets again to define the Selic. The market expectation is that the basic rate will be reduced to 12.75% per annum.

Published monthly, the IBC-Br uses a different methodology than that used to measure gross domestic product (GDP), which is the official indicator of the Brazilian economy. According to BC itself, the index “contributes to the development of the monetary policy strategy” of the country, but “not exactly a GDP preview”.

GDP is the sum of all final goods and services produced by a country. With a quarterly result exceeding forecasts, in the second quarter of the year the Brazilian economy grew by 0.9%, compared to the first three months of 2023, according to the Brazilian Institute of Geography and Statistics (IBGE). Compared to the second quarter of last year, the Brazilian economy grew by 3.4%.

GDP accumulated an increase of 3.2% in the 12 months. In the first half of 2023 the cumulative increase was 3.7%. In 2022, Brazil’s GDP grew by 2.9%, totaling R$9.9 trillion.

Source: Terra

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