Fynsa
This was Britney Spears' song in the late 90s, the first of countless hits that catapulted her to be considered the "princess" of pop. The chorus sang that phrase, innocently blaming herself for doing to her young love the same thing she had done before.
This memory from my adolescence was the first thing that came to my mind when I read the communiqué of the Central Bank's monetary policy meeting. At this meeting, the Central Bank raised the TPM by 75 bps, above our expectations and those of the Bloomberg consensus (50 bps)., although in line with what was implied by financial assets, to stand at 9.75%.
In the background to this decision, and in summary form, it is commented that the external scenario has worsened, the armed conflict between Ukraine and Russia continues to be a major source of risk and instability for commodity prices and, in this context, copper has evidenced a significant drop. Locally, activity has been in line with expectations, as the surprise of the last Imacec was explained by the mining component, with demand components slowing down at uneven speed. On the other hand, prices evolved as described in the last IPoM, beyond specific surprises.
With this in mind, then why is it decided to continue with rate hikes that are at the high end of the TPM corridor? According to the statement, the main actor in all this is the strong exchange rate depreciation and I quote "(...) these developments will cause an additional rise in domestic prices, in a context in which inflation and its persistence are already high". With this, marginal inflation, while originating from a "supply-side" source, would cause inertia, which in the Council's view requires an additional rate response. While we do not fully share this diagnosis, we understand the consequences of this.
In addition, for the fourth consecutive for the fourth consecutive time, a change in the bias of the press release is made, rhe situation experienced at the March and May meetings was repeated: a bias that indicated an early end to the hiking cycle, only to eliminate that bias and raise the rate more than expected. Oops, they did it again. Although I think it is tremendously positive to have a Central Bank that has the flexibility to change its policy strategy in the face of sudden changes in the scenario, I also believe that this undermines the effect of future communication on market expectations and consequent price generation, precisely something that the Central Bank has tried to avoid in the past.
Thus, it seems relevant, then, to reformulate our scenario for monetary policy, since it seems unlikely that the change in bias (removing the wink at the end of the upward cycle) is justified by less than 100 bp. Thus, we forecast that the TPM would reach 11% at the October meeting, closing the year at that level.closing the year at that level. A new monetary policy corridor would be presented in the September IPoM. Let's hope it does not do it again.
