Fynsa
I know that the point has never been to have fun, and that there are other things for that (like The Office), but the latest monetary policy statement, along with its IPoM, were pretty boring. I’m not saying that’s necessarily a bad thing; I’m just pointing out that, compared to previous ones, there wasn’t much change either in the analysis of the macroeconomic situation or in the Bank’s monetary policy response to it.
First, at the meeting earlier this week, the Central Bank’s Board unanimously decided to cut the TPM by 75 basis points, which was more or less in line with expectations. I say “more or less” because the market was torn between 75 and 100 basis points, but either figure was seen as a plausible option. This reduction is smaller than the one that kicked off the cycle of rate cuts (100 bp), but it is in line with the expected trajectory for the rate over the coming months.
Second, our sense is that the slowdown in the pace of rate cuts has nothing to do with changes in the economic outlook, but rather with certain risks that have arisen as a result of this decision. Simply put, while the macroeconomic framework has remained unchanged, the significant depreciation of the peso in recent months has caused concern for the Central Bank, which is why it has been reluctant to “add fuel” to the narrowing of the interest rate differential. In fact, the very marginal increase in the year-end inflation forecast (from 4.2% to 4.2%) and the rise in the average inflation forecast for next year (from 3.3% to 3.5%) are influenced by an increase (or a smaller decline) in the volatile and core goods components, which is closely related to exchange rate movements.
For the rest of the scenarios—both baseline and risk—the main focus is on the external environment, not only on growth but also on inflation. The most concerning factors relate to the trajectory of monetary policy in developed economies and the weakness shown by the Chinese economy. China’s slower growth has direct effects on our economy (for example, commodity prices and export values), but also indirect effects, due to a lower global appetite for risk that affects domestic assets. Therefore, developments in China will be of primary importance in projecting future movements in the TPM, more so than other local factors that were predominant in recent semesters.
Finally, we believe that the Central Bank will continue to cut the rate during its upcoming meetings at a pace more in line with recent moves than at a slower one. Even if we see upward inflation surprises in the coming months, these will most likely be one-time shocks that do not call into question the overall decline in inflationary pressures. With that in mind, we maintain our year-end TPM forecast of 7.5% and our forecast of 3.75% for December 2024.
