We expect the central bank to stay put on February
According to the latest Central Bank survey of expectations, analysts revised their inflation expectations for this year upward. The new survey, the first after the government changed the inflation targets for 2018 and 2019 (to 15% and 10%, from 10 ±2% and 5 ± 1.5%, respectively), showed a marked increase in inflation expectations.
The inflation expectation for 2018 now stands at 19.4%, significantly above the 17.4% figure reported in the December poll (Itaú forecast: 19%). This is sharpest of the nine consecutive increases since March 2017, when participants expected 14% inflation for 2018. Analysts estimate that consumer prices will climb by an average of 1.87% MoM over the next three months, reflecting the expected regulated-price increases as well as higher core item prices. The median core inflation expectation for 2018 rose to 16.9%, after remaining flat at 14.9% in the previous two surveys (1.5% monthly average until April).
Survey participants expect the current reference rate (27.25%) to fall to 26.5% by March 2018. For YE18, analysts expect the repo rate to fall to 21.75% (our forecast: 24%).
Analysts also revised their inflation expectations for 2019 to 13.5%, from 11.6% in the November poll (Itaú forecast: 17%). The reference rate expected in December 2018 is 16% (our forecast: 22%).
In our view, higher inflation expectations and likely unfavorable inflation readings in January and February leave little room for monetary easing. We expect the central bank to stay put in February.
In our view, higher inflation expectations and likely unfavorable inflation readings in January and February leaves little room for aggressive easing of the monetary policy. We expect the central bank to stay put at its next meeting.