After freezing the rate, inflation expectations will be key to future monetary policy
Indeed, the first month of 2023 demonstrated a trend in that direction. The inflation January year-on-year was 8.05% year-on-year, a percentage considerably lower than the peak of September 2022, when it reached 9.95% year-on-year.
For this reason, the Committee, which met for the first time this year, highlighted the sustained decline registered by the Consumer Price Index (CPI) since then.
Furthermore, he noted that “the inflation expectations they have begun a convergence process”. According to the statement, the average of the agents’ inflation expectations indicators for the monetary policy horizon occurred for the second consecutive month, something that had not been observed since mid-2021.
On this, the Copom evaluated the recent results of inflation expectations “favourably” and maintained that it will take into account their “future convergence as a guide, with the objective that they converge to the target range towards the end of the monetary policy horizon”.
This will mean that, as long as expectations remain above the targets, the contractionary bias will continue in the next updates until the desired results are obtained.
Some analysts believe, in turn, that the freezing of the reference rate could generate a moderation in the appreciation of the peso, which increased by 10.35% against the dollar in 2022 and so far this year it accumulates a valuation of 1.84%. The current price continues around 39 pesos, levels that generate repeated claims by different productive export sectors of the country.
The effects of the drought on prices will be “transitory”, estimated the Central
In the document, the Copom also reported the impact of the drought on agricultural activity and, in particular, its consequences on food prices. Regarding this, although the BCU recognized a possible upward pressure, it estimated that the effect on the CPI will be transitory.
The decision to keep the reference rate at 11.5% is taking place in a “more auspicious” world outlook than a few months ago, according to the Committee. In this sense, the greater dynamism of the United States economy, the boost to global growth by China and the “better than expected” annual closing for the Euro Zone were highlighted, as well as prospects for a less intense recession for the current year.
The next meeting of the Copom will be the Wednesday April 19and not on the 17th of that month, as had been originally announced.
Source: Ambito
