Itaú BBA - The start of a gradual hiking cycle

Scenario Review - Chile

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The start of a gradual hiking cycle

November 8, 2018

Amid mixed activity and inflation signs, gradual hiking would be prudent


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

Activity in 3Q18 showed some weakness that highlights the risks to the domestic recovery. Nevertheless, we maintain a favorable view on the global outlook, which will aid the economy ahead.

We expect a weaker year-end exchange rate relative to our previous scenario, as we now expect a stronger USD than previously. We now see the CLP closing the year at 660 CLP/USD (up from 635). As trade tensions diffuse ahead, we expect increasing copper prices and rising domestic interest rates to bring the FX to 645 CLP/USD next year (up from our previous estimate of 625). 

An activity recovery is expected ahead, but given our view that economic slack persists amid a still-risky external scenario, gradual hiking would be prudent, consistent with the guidance offered by monetary authorities. We still see the policy rate at 3.75% by the end of 2019, with the next rate hike coming in 1Q19.

President Piñera outlined his administration’s much awaited pension reform plan, which would increase the burden on companies and bolster pensions for the most vulnerable segments of society. The debate in Congress is set to be grueling, dragging deep into 2019.

 

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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