Itaú BBA - A more patient central bank

Scenario Review - Chile

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A more patient central bank

February 7, 2019

We revised our growth forecast to 3.2% for this year (from 3.5%), due in part to uncertainty over global trade negotiations and weak data at the end of 2018


For the full version with all charts and tables, please open the attached pdf file
 

• Non-mining activity led the growth rebound in 4Q18, while mining moderated its decline. Robust imports of capital goods, positive credit results, recovering sentiment and improving copper prices point to favorable activity dynamics in the short term. Nevertheless, we revised our growth forecast to 3.2% for this year (from 3.5% previously; 4.0% in 2018), due to uncertainty over global trade negotiations, feebler activity in the core economies and weak activity data at the end of last year.

• The Chilean peso strengthened, helped by a looser monetary policy stance by the Fed. As trade tensions dissipate, aiding copper prices, we continue to expect the CLP to close 2019 at 645/USD.

• The central bank hiked the policy rate to 3% in January. We still see the end point of the normalization cycle as 4.5% in 2020. However, we expect less tightening this year relative to our previous scenario (to 3.5% vs 3.75% before), with further rate moves in 1H19 unlikely as the board adopts a more patient approach given a risky external outlook.

 

João Pedro Bumachar
Vittorio Peretti
Miguel Ricaurte

 

For the full version with all charts and tables, please open the attached pdf file



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