J.P. Morgan & Pantheon See Scope For Easier BI Policy

The US bank and Pantheon see scope for easier policy settings, albeit over different time frames, see below for more details.

J.P. Morgan: "Despite the benign path of core inflation, the unexpected rate hike on October 19 draws into the focus the importance of FX stability in the central bank’s reaction function, which in the past had been sensitive to changes in net FX reserves, a proxy for BOP flows. In this context, unless there is persistent US$ strength next year, we expect the central bank to remain on hold and not hike further, otherwise the direction of travel would be for easing given the prospective growth and inflation path.
Indeed, following portfolio capital outflows in October, there has been around US$2.6 billion in inflows through November 21 and this has led to some easing of FX pressures and should be evident in both the net FX reserves and foreign portfolio holdings data for November.

Anticipated easing in the US$ opens room to ease in 2H24 – Indeed, given the prospective softer path for the US$ in 2H24, we have thus penciled in two 25bp in rate cuts in 2H24."

Pantheon: "Our base case is that BI will follow up a likely December cut with another 25bp reduction in Q1 to take more pressure off of the economy. Economic activity is clearly losing steam, in view of the Q3 GDP miss, despite it being flattered by statistical discrepancies; we expect headline growth to slow further in Q4 to 4.7%, from 4.9% in Q3, while our 2024 forecast stands at 4.8%, softer than 2023’s likely 5.0% outturn. The emerging soft patch in private consumption likely will last until the middle of next year, at least, with real wage growth remaining historically subdued and the prospect of bigger nominal increases diminishing, according to business surveys. Admittedly, the worst of the slump in exports is over, but the lagged impact of this downturn on machinery and equipment capex will continue to hurt in 2024."