Itaú BBA - Rate hikes on the horizon

Scenario Review - Chile

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Rate hikes on the horizon

July 5, 2018

The strong start to the year puts an upside bias to the activity outlook

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

Monetary stimulus, low inflation and increased confidence will sustain an activity recovery this year. Meanwhile, rising global tensions could impact external demand, curb copper prices and affect the small, open economy that is Chile. We see growth of 3.8% for 2018, a notable pickup from the 1.5% posted last year, and 3.5% for next year. 

Lower copper prices and the general risk-off mood have led to a sharp weakening of the Chilean peso. Although we do expect some relief as long as global trade concerns do not escalate to detrimental levels and as long as the domestic growth outlook is buoyant, we now see the year-end exchange rate at CLP 635/USD (620 previously) and at 625 by the close of 2019.

Strong growth and the recent weakening of the currency mean lower risks for inflation convergence to the target. We now expect a monetary policy normalization to begin at the end of this year rather than in early 2019, in line with the guidance provided by the central bank in its most recent monetary policy report. Next year we still see four hikes, taking the policy rate to 3.75% (3.5% previously).

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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