Fynsa
According to the press release, in the global context, the process of downward adjustment in monetary policy interest rates continues and the Federal Reserve (Fed) has recently joined the movement, with an initial 50 basis point cut in the Fed Fund Rate. As for China, the focus remains on possible further announcements by the government, with measures to support the economy. On the geopolitical front, the risks posed by the conflict in the Middle East remain latent.
At the local level, the monetary authority estimates that the macroeconomic context has evolved in line with the base scenario set forth in the last Monetary Policy Report -IPoM- and the data show a greater loss of dynamics in activity, which has been reflected, in turn, in an increase in unemployment.
Inflation continues to move in line with expectations and, despite the positive surprise of the September figure, expectations for the remainder of the year are consistent with the latest IPoM projections. It should be noted, however, that inflation expectations remain anchored, which means that the Central Bank is confident of achieving the inflation target within the monetary policy horizon.
Nevertheless, we maintain our projection of a further cut of 25 basis points for the mid-December meeting, which would bring the rate to close the year at 5.0%. We also expect the adjustment process to continue in 2025 to reach the neutral level by mid-year.
It should be recalled that, precisely in the last IPoM, the Central Bank kept the range for the economy's long-term rate unchanged at 3.5%-4.5%. The rate level within this range at which the monetary normalization process will be parked in this cycle will, of course, respond to the evolution of activity and prices at the local level, but also to the impact that external factors may have on the trajectory of prices.
Precisely, one of the points highlighted during this meeting to be followed closely is the risk to oil prices posed by the development of the Middle East conflict, which -if it escalates- could impact fuel prices and, thus, delay the monetary adjustment process.
In the immediate term, we do not foresee major reactions from local rates to this decision, since it was widely anticipated and in the expectation that in the following meetings the movements will continue to be of the same magnitude.
