Itaú BBA - Gradual hiking cycle to continue

Scenario Review - Chile

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Gradual hiking cycle to continue

January 10, 2019

The consolidation of the activity recovery continues, but there are still headwinds


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

November activity data means growth close to 4% in 2018 is likely (after 1.5% in 2017). We expect a deceleration to a still-solid 3.5% pace this year, but persistent headwinds are downside risks – global trade uncertainties, lower copper prices and deteriorating private sentiment.

Low inflation readings at the end of 2018 may result in below-target inflation in 2019 due to inertia. Nevertheless, a pickup is likely, given the expected consolidation of activity (narrowing the output gap) and tradable inflation pressure because of the weaker exchange rate.

With activity still dynamic at the close of 2018, the central bank will likely feel comfortable to continue with its normalization cycle later this month. Going forward, the board will likely re-evaluate whether ongoing global trade uncertainties, softening global growth and lower confidence are hampering the growth outlook enough to alter its trajectory for the policy rate (reaching 4.0%-4.5% in 1H20).
 

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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