Scotiabank: Annual inflation would approach 0% in March

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They expect the BCR to maintain its benchmark interest rate at 3% at this Thursday’s monetary policy meeting

After starting 2018 with a weak inflation rate, annual inflation would touch the floor in March, approaching 0%, according to estimates by the Department of Economic Studies (DEE) of Scotiabank.

Inflation went from 1.36% in December 2017 to decrease to 1.25% in January 2018, approaching the lower limit of the target range of between 1% and 3%. In this scenario, the agency points out that the annual rhythm will depend on the rise in food prices such as tubers, electricity tariffs, fuel prices and the increase of excise taxes and initial expenses on education.

Meanwhile, the report described as “mathematically almost inevitable” that annual inflation is below 1% in March, since March inflation in 2017 was 1.3% only that month due to the impact of the El Niño Phenomenon. Coastal.

“Given that normally one would expect inflation in March of between 0.3% and 0.4% due to seasonal factors due to enrollment and school supplies, the annual inflation trajectory would fall significantly,” he says.

Thus, inflation is expected to begin to rebound from April, so “the focus will be on how strong the rebound will be”.

INTEREST RATE

The weak rhythm of inflation reinforces the expectation that the Central Reserve Bank (BCR) will reduce its interest rate of reference in March to 2.75%, while also increasing
probability of an additional cut in the rate during the first
half of the year, at 2.50%.

However, a cut of up to 2.25% is unlikely, “unless the inflation trend from April onwards came in weaker than expected.”

Regarding the monetary policy meeting that will be held on Thursday, February 8, the Scotiabank DEE expects the BCR to maintain its benchmark interest rate at 3%.

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