VIEW: JP Morgan Forecasts Inflation Around Band Mid-Point

February CPI inflation was slightly higher than expected at 2.8% y/y up from 2.6% as food prices rose, while core was steady at 1.7% y/y. JP Morgan notes that seasonally adjusted headline rose 0.5% m/m but core increased only 0.1% m/m. It expects moderate inflation and a weaker US dollar to enable BI to cut rates twice by 25bp in H2 this year.

• “Nonetheless, we expect headline CPI to average around 2.4%oya this year, at the lower end of the 2024 inflation target range of 1.5-3.5%oya. This forecast pencils in direct and indirect fiscal support to ensure price stability that comes on-top of the already impressive set of supply-side measures implemented over the past several years. Indeed, the decline in retail rice prices in January despite rising wholesale prices speaks to this dynamic.”
• “Ahead of the expected easing in the BI rate, the sequencing will likely see a normalization of liquidity conditions together with convergence in the SRBI rate to the FASBI rate, which would be a useful indication of the shift in monetary policy stance. We expect that to be followed by a cut in the BI rate which we anticipate will happen broadly concurrently with the easing in the Fed funds rate.”