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Goldman Sachs See Policy Rate Reaching 5.5% By End-2022

  • Annual headline inflation accelerated to 5.62% yoy, a 37bp increase from its November print, and significantly above the 5.3% yoy forecasted by the MPC at its policy meeting in December.
  • Core ex-food increased 0.44% mom and core ex-food and energy increased 0.33% mom in December. Consequently, the annual core inflation measures accelerated: core ex-food increased 7bp to 3.44% yoy, above the 3% midpoint inflation target. Likewise, core ex-food and energy annual inflation increased to 2.85% yoy (from 2.77% in November and 1.11% yoy in January) and remained below target.
  • All in, GS expect the MPC to continue to normalize policy in the coming meetings. In their assessment, an above-neutral policy stance is warranted given above-target inflation, drifting inflation expectations, and a large and widening current account deficit whose funding could become more challenging were global financial conditions to tighten.
  • In addition, high risk-premia, given the challenging fiscal picture and an uncertain political and policy backdrop, also justify a careful calibration of the central bank’s monetary stance. Overall, GS are anticipating monetary policy will cross its neutral level to reach a slightly restrictive monetary stance, with the policy rate increasing to 5.50% by the end of 2022.

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