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Goldman Sachs: Expect 25BP Cut in October, Not Ruling Out Skip

PERU
  • The communique included two additional conservative signals. First, while the MPC maintained its view about the transitory nature of the food supply shocks pressuring inflation up, it judged that only some of these shocks are starting to dissipate. Second, the MPC did not qualify the decline in headline and core inflation (“significant decline” in the previous two meetings), which in Goldman’s view implies that the rapid progress on the disinflationary front since May, partly due to favorable base effects, may be difficult to replicate.
  • Goldman Sachs believe that the MPC found just enough comfort in the process of bringing inflation back to target to kick off the normalization of the policy stance, but not enough to retain an unambiguous easing bias.
  • Going forward, GS view the risks of inflation as two-sided. On the one hand, core pressures remain subdued on the back of a negative output gap and very weak activity data. On the other hand, disruptions to food supply and high international energy prices pose upside risks to noncore components.
  • Goldman’s baseline scenario is that the MPC will deliver a conservative 25bp cut at the next meeting if food inflation pressures remain contained. Nevertheless, they acknowledge the possibility of an “every other meeting” strategy, according to which a hold in October would clearly be on the table.
  • GS will be on the lookout for updated guidance on the path for monetary policy (especially regarding the overall hawkish/dovish policy tone indicator filter), inflation, and activity in the September Quarterly Inflation Report (QIR), to be released on Friday.
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