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Analysts Pencil In Fourth Quarter For Monetary Easing

  • Goldman Sachs expect inflation to continue to trend downwards in 2H2023 on the back of moderating food inflation pressures, favorable base effects, and a highly restrictive monetary policy stance. However, the backward-looking indexation mechanisms in sectors where contracts are negotiated and adjusted year-round (e.g., rents, with a combined 25% CPI weight), policy decisions (e.g. elimination of fuel subsidies) and a still positive output gap will keep inflation under pressure, warranting a conservative calibration of monetary policy. Accordingly, Goldman Sachs do not anticipate rate cuts before 4Q2023.
  • JPMorgan maintain in their central scenario annual headline CPI easing ahead, converging to 8.5%oya by December 2023 and 4.7% by December 2024. In JPM’s modal scenario they pencil in the policy rate stable ahead at 13.25% through 3Q23. But the June CPI report reinforced the call for core CPI is to start declining in July, which together with additional correction of food CPI in 3Q23 and additional domestic demand moderation should offer the BanRep the possibility of trimming the nominal policy rate in 4Q23. The main risk to the forecast path is the potential impact of El Niño on inflation (particularly electricity and food prices). JPM continue to expect the start of the easing cycle in October, with a 75bp cut. Their baseline assumes the policy rate converges to 11.75% by Dec-23, and 8.0% by Dec-24.

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