Fynsa
Finally, our Central Bank finally began the process of lowering the interest rate, which has been expected for a long time.which had been expected for quite some time. Although the initial doubts had to do with the timing of these cuts, the concern later shifted to the magnitude they could have. This was settled with the first cut, of 100 basis points, bringing the rate to 10.25%, which was perceived as a guide to what was to come in the next meetings.
With an inflation figure that had been well below expectations, it fed a market that was "in need" of rate cuts, which strongly moved asset prices. If we add a non-rebounding activity, it was difficult to contradict these projections. However, it always seemed to us to be an exaggerated adjustment for both price and rate scenarios.
Thus, the variation of 0.4% m/m of the CPI in July, above expectations, calmed the waters with respect to such a precipitous turnaround of what had been the macroeconomic trajectory during the last year. In any case, the dichotomous sentiment that the market often shows is not new, going from completely opposite states in a very short time, thinking that some temporary figures are permanent. I do not mean to say that we do not expect inflation to continue to ease over the next few months, but the speed did seem exaggerated. The same with the TPM: the rate has to come down in the coming months, but the pace of cuts would not be as aggressive as the hikes were at the time.
With all of the above, we learned the minutes of the meeting in which the rate was unanimously lowered by 100 basis points. The latter option was selected due to a greater reduction in inflation than expected in the last Monetary Policy Report. However, and quite decisively, it was made clear that the pace of future cuts was not tied to the magnitude of the first one, partly relativizing the urgency to migrate quickly to a neutral level. This was reaffirmed in interviews and presentations by the president, who stated that monetary policy was not rigid.onetary policy was not rigid and that the evolution of other variables would also be closely evaluated, which we understand as a nod to the sharp depreciation of the peso and its inflationary implications, especially for goods.
Finally, although with a lot of volatility around our expectations, we stick with our scenario for both the TPM and inflation. For the benchmark rate, we expect it to end 2023 at 7.5%, while the CPI variation would end at 4.1%.
