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JPMorgan Say Terminal Rate Now Forecast At 5.0% By Q4 2024

CHILE
  • The narrative in the statement does not convey any discussion on why they decelerated the normalization pace of the real rate. Note that, despite the 175bp correction of the nominal policy rate, the real ex-ante rate is still scratching the 6% level, higher than the 2008 peak. This, when inflation expectations by the policy horizon have been anchored at 3% for more than six months, and the next 12-month expectations run only 50bp above the 3% target.
  • In all, the Board’s efforts to limit the uncertainty range on the policy path ahead while tweaking easing pace early on is not strange to risks. One path was to assess and describe the early stages of the easing cycle as just a due correction of the real ex-ante rate until reaching a level consistent with current realized and expected inflation rates. By altering the easing pace at this juncture, the inference on the reaction function regains relevance. Ex-ante, the deceleration could be rationalized as a Board focused on moderating exchange rate variations and thus tradable inflation. That would come as an undue activity cost.
  • Following the decision today, JPMorgan maintain as base case back-to-back cuts for 75bp in the next two policy meetings, so for the policy rate to converge to 8% by the year end. The terminal rate is now forecasted at 5.0% by 4Q24.
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