Itaú BBA - Low inflation for longer

Scenario Review - Chile

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Low inflation for longer

March 14, 2019

Short-term uncertainty over inflation dynamics and still elevated external risks support a more cautious central bank

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

• Activity in 1H19 looks set to underwhelm. Nevertheless, the recent recovery of copper prices will likely support business confidence and lead to still vigorous investment throughout the year. We see GDP growth of 3.2% this year (4.0% in 2018).

• Inflation will likely remain low this year. Although we still see some pickup as the year unfolds (due to some normalization of tradable inflation and a narrower output gap), the results of the methodological changes have led us to revise our year-end call to 2.6% (3.0% previously).

• Given our new forecasts for inflation, in an environment of weak global growth and more benign financial conditions for emerging markets, we now see only one additional 25-bp rate hike this year (to 3.25%; 3.50% previously), and three hikes next year (bringing the policy rate to 4.0%).
 

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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