Itaú BBA - Confirming a gradual monetary policy normalization cycle

Scenario Review - Chile

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Confirming a gradual monetary policy normalization cycle

December 13, 2018

Dipping inflation in the coming months and unconsolidated economic recovery means a hike in January not a given.


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

Despite the slowdown of activity in 3Q18, growth will be solid this year due to the strong first half. In fact, we are revising our growth expectation up by 0.1pp, to 3.9%. Persistent headwinds (ongoing global trade uncertainties and lower confidence levels) could hamper the growth outlook for next year (we currently expect 3.5%).

Weaker trade data and downward revisions of our copper price outlook led to an increase in our current account deficit forecasts. We now expect a deficit of 2.6% of GDP this year (2.4% previously), compared with last year’s 1.5%. Some further widening, to 2.7%, is expected for next year. 

Inflation is likely to remain low as global oil prices plummet and demand-side pressures remain muted. We now expect inflation to end the year at 2.7%, with no monthly variation expected in December (from 3% previously and 2.3% in 2017). The low inflation readings at the end of this year put a downside bias on our 3% inflation forecast for the end of 2019. 

With no relevant sources of inflationary pressures and a still-risky external scenario, the monetary policy normalization cycle will be gradual, as evidenced by the decision to remain on hold in December, following the first hike of the cycle in the previous decision. We see the policy rate at 3.75% by the end of 2019, with the next rate hike in 1Q19.
 

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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