Fynsa
First, in response to a less dynamic second quarter than expected, the report reduced the upper range of its growth estimate, from 2.25% - 3.0%, to 2.25% - 2.75%.
From our perspective this is correct, but it is only a necessary correction after the unusual optimism of the previous projection. Based on the data at the time, it was clear that the improvement in the first quarter had been influenced by transitory factors and, moreover, by some factors that would inevitably have to be reversed, such as the high level of public spending during the first months of the year, especially current spending.
Indeed, then, the figures for the second quarter confirmed this, with weak domestic demand, expressed in a slowdown in consumption and still stagnant investment. It seems relevant to us to make this distinction, since the reasons for the decrease in projected growth are important to understand other changes.
Second, while the inflation estimate for 2024 is increased and that for 2025 is maintained, it does so because of a greater advance in the volatile component. While citing a higher increase in electricity tariffs in June and July, increases in maritime freight rates and a further depreciation of the exchange rate, we would add the recent increases in food prices, especially meat and fresh fruit and vegetables. In fact, in underlying terms, the projections are lower than the previous report, echoing a lower pass-through of the shocks supply shocks to consumer prices, especially due to the lower dynamism of demand. All in all, total inflation is expected to converge faster than previously expected, as this element of persistence diminishes.
Therefore, the window to continue with TPM cuts is open again. This has already materialized with a 25 bp drop -at the September meeting- after the maintenance observed in August.
Although the previously exposed fundamentals are important, they are not information that would not have been available in previous meetings. What is new, undoubtedly, is the near ratification that the FED Fund cuts would begin in the US, which would give more degrees of freedom to a Central Bank that was quite uncomfortable with having to continue lowering the rate (when necessary) while the FED and the markets did not see a normalization in the North American country.
How much more? Well, between one or two more times this year (depending on financial tensions in October) and four or five times next year. Although the Central indicates that neutrality would be reached by the end of 2025, we believe that this would be around the middle of the year.
