Itaú BBA - Evening Edition – Monetary policy board discusses all options in Chile

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Evening Edition – Monetary policy board discusses all options in Chile

May 27, 2019

Although all members agreed to maintain the rates stable at 3%, several stated that a neutral stance justified discussing all possibilities.

Talk of the Day

Chile

According to the minutes of the May’s monetary policy meeting, the board is reviewing its options amid growing uncertainty. Although all members agreed to maintain the rates stable at 3%, several stated that a neutral stance justified discussing all possibilities. Prior to the publication of the 2Q Inflation Report (IPoM, on June 10), where the central bank will likely revise structural parameters (neutral policy rate and potential GDP), the board is reevaluating the appropriate path for monetary policy in the context of weakening domestic activity and elevated international risks.

All possibilities (cut, hold and hike) were discussed.Several board members easily dismissed the option to hike in the absence of supporting elements (more dynamic growth or inflation rates) and some signs of downside risks to the economic outlook. Some members believed cutting rates was also an option – a rate cut could be justified as a preemptive measure amid the current domestic and foreign risks or in case that the monetary stimulus was smaller than originally intended. One board member objected discussing different rate trajectories relative to that outlined in the 1Q IPoM (stable rates until close to yearend), as the economic scenario outlined in this report remained valid. Notwithstanding the discussion, ahead of the IPoM publication, we expect the board to remain on hold at the next monetary policy meeting (June 7).
** Full story
here.

Brazil

The current account posted a deficit of USD 62 million in April, disappointing our estimate (USD 600 million surplus) and market expectations (USD 500 million surplus). Nevertheless, the deficit remains at a historically-low level. In the financial account, direct investment in the country (DIC) added up to USD 7.0 billion, beating our estimate (USD 6.3 billion) and market consensus (USD 5.9 billion), and remained the main source of financing for the current account deficit. For the next years, we maintain our expectation of a gradual increase in the current account deficit, but not to the point of compromising the sustainability of Brazil’s external accounts.
** Full story
here.

According to FGV, construction confidence declined 1.8 p.p. in May, to 80.7, the lowest level since September 2018. The negative result was driven by both the expectations index, which fell 3.0 p.p, and the current conditions component, which declined 0.6 p.p.

The BCB released its weekly survey with market participants (Focus) with no major changes. The median of GDP growth forecasts for 2019 remained virtually flat at 1.23% (from 1.24%), and remained stable at 2.50% for 2020 and 2021. The median of IPCA inflation expectations was stable at 4.07% for 2019, at 4.00% for 2020 and 3.75% for 2021. Similarly, the year-end Selic rate did not change for the three years horizon (2019-2021): 6.50% for 2019, 7.25% for 2020 and 8.00% for 2021. The median of exchange rate remained at BRL 3.80/USD for 2019 and 2020, and BRL 3.85/USD for 2021.

Tomorrow’s Agenda: FGV’s final industrial confidence index for May will be released at 8:00 AM. According to the preview published last week, business confidence in the sector decreased 1.6 pp. to 96.3 in the period, with declines both in the current situation and in the expectation components.

Mexico

Tomorrow’s Agenda: INEGI will announce April’s unemployment rate at 10:00 AM, which we expect to come in at 3.4%.



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