VIEW: JP Morgan Sees Inflation In Lower End Of Band & Two H2 Rate Cuts

January CPI was close to Bloomberg consensus with headline slightly higher at 2.6% but in line with December and core slightly lower at 1.7% down from 1.8%. JP Morgan notes that seasonally adjusted headline was flat on the month and core rose 0.1% m/m. They expect two 25bp rate cuts in H2 2024.

• They are forecasting average inflation of 2.4%, “at the lower end of the 2024 inflation target range of 1.5-3.5%oya”. This expectation assumes “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”.
• “External financial conditions have begun to ease, and this may continue as DM central banks begin reducing their policy rates. Against this backdrop, BI’s policy stance should, in our view, also reverse. 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. Subsequently, we expect that the combination of benign inflation and the prospectively softer path for the US$ in 2H24, we expect two 25bp in rate cuts in 2H24 with the risk for more.”