- Goldman Sachs expect the MPC to lower the policy rate by a moderate 25bp to 7.50%. Their call is grounded on macro-financial considerations and recent policy signals.
- First, core inflation softened on the back of dissipating seasonal factors. On an annual basis, both headline and core inflation continue to trend downwards, with the core reading now tracking only 80bp above the target band. Second, inflation expectations declined further and are well-set on a convergence path towards the target band. Third, activity remains subdued as sequential real GDP growth retrenched again, adding to contractions in the previous two quarters. Fourth, the current account balance posted a surplus for the first time since 4Q2020, paving the way for a considerably narrower external imbalance in 2023 relative to the previous year.
- Goldman Sachs also interpret the policy signals from the August MPC meeting as striking a dovish tone. First and foremost, the MPC dropped the hawkish statement from previous communiques which they view as an implicit indication that the MPC is ready to start the normalization of the policy stance.
- Moreover, the MPC highlighted that both annual headline and core inflation had declined significantly, acknowledged that the shocks in Q1 had a larger than anticipated impact on activity, and maintained its view about the transitory nature of the food supply disruptions pressuring inflation up.
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