MNI China Daily Summary: Monday, November 11

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CPI Expectations Continue Decline, JPMorgan Expect Faster Easing In Feb

PERU
  • The 12-month inflation expectations of economic and financial system analysts were reduced from 3.15% in November to 2.83% in December 2023, the BCRP has reported. Thus, inflation expectations for 12 months' time returned to the target range for the first time since June 2021. According to the December Survey, CPI expectations for 2024 were lowered to a range of 2.7% to 3.5%.
  • JPMorgan noted the expected inflation decline passively tightened the monetary stance, as the ex-ante real policy rate climbed to 3.8%, as compared with 3.7% in the prior month. This against the backdrop of poor growth and a negative output gap, consistent with declining core inflation. The decline of both headline and core CPI has cemented the consolidation lower of expectations, opening the door for the BCRP to accelerate the easing pace to 50bp per month.
  • Yet, the fact that headline CPI has still to converge within the target range makes JPMorgan expect the continuation of the real ex-ante rate realignment pace. That would imply a 25bp this week, driving the nominal policy rate to 6.5%. That said, JPM believe that, against looser global financial conditions, it would be optimal to accelerate the realignment of real ex-ante rate, though the likelihood is for February. The terminal rate for the cycle is projected at 4.0% by 4Q24 (implying a 50bp interest rate differential to the Fed funds’ terminal rate).
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