BCCH Analyst Views

Morgan Stanley: To Neutral And Beyond

• The statement highlighted stronger-than-expected domestic demand as well as high inflation, although policymakers flagged that core inflation was tracking in line with their projection.
• Forward guidance was hawkish, but vague: Policymakers committed to further hikes in the near term and also signaled that rates would be kept above neutral levels for “most of the monetary policy horizon”. Still, they did not provide additional information on the pace of hikes or the extent of the hiking cycle.
• MS keep their call for rates to peak at 6.00% by May 2022. On the Strategy front, MS remain short breakeven inflation in 10yr swaps, targeting 3.10%.

Barclays: Fast Normalization Can Continue

• Barclays view the communique as relatively hawkish, so they think this decision could be followed by another 125bp hike at the January meeting, instead of 100bp.
• They think that the corridor for the policy rate in tomorrow’s IPoM can show a more front-loaded pace.
• They have also been of the view that the terminal rate should be higher than consensus expects. Barclays call is for 5.75% to be reached by May, but they now see upside risks to that call - the level could be reached sooner, and the terminal rate could be higher. But they will wait for the publication of the IPoM to reassess forecasts.
• They would expect the very front end of the curve to steepen as the market prices further BCCh front-loading, while the curve should flatten against the belly and long end. The market could also moderate its pricing of rate cuts into the end of 2022, in line with Barclays view that cuts are more likely to come later, by the end of Q1 2023.
• A post-electoral relief rally seems likely, but the medium-term outlook remains bearish.