Itaú BBA - Chilean Monetary Policy Minutes emphasize low-for-long message

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Chilean Monetary Policy Minutes emphasize low-for-long message

Abril 17, 2020

Given the scenario outlined by the board, we expect rates to be kept at their technical minimum throughout the year

Talk of the Day 


The minutes of the March 31 meeting show that the deterioration of the macroeconomic outlook and its implications for inflation required a significant increase in monetary stimulus. While the peso depreciation put upward pressure on inflation in the short term, falling oil prices and a widening output gap would more than offset these pressures in the medium term. Hence, all board members agreed that the prudent option was to lower the policy rate by 50bps to its technical minimum of 0.5%. Although several members noted that the option to lower the rate by 25bps was reasonable, it lost appeal when considering the urgency of the current situation. The board also deemed it essential to signal that the expansionary stance would persist for a significant period, along with the use of non-traditional measures to support liquidity and credit, in an effort to sustain the smooth functioning of the financial system that would help limit the damage to activity, employment and income derived from the global shock. Given the scenario outlined by the board, we expect rates to be kept at their technical minimum throughout the year. Furthermore, we cannot rule out the use of additional forms of monetary tools to preserve the correct transmission of monetary policy and facilitate credit flow to companies and individuals in need of funds to overcome this challenging period. ** Full story here.


Minister Guzmán announced key points of debt restructuring offer. Argentina offered a three-year grace period for payments (2020-22) to be followed by interest coupons starting at 0.5% and increasing gradually. The average coupon will be 2.33%. The treasury expects this measure to reduce the interest bill by around USD 37.9 billion in nominal terms, equivalent to 38% of the scheduled payments. According to Guzmán, the proposal also includes a USD 3.6 billion reduction in the face value of the debt (5.4% of the stock).

It is still difficult to assess the value of the proposal based on these parameters. The maturity, numbers of bonds and the profile of principal payments were not disclosed. The final value of the proposal is highly sensitive to the discount rate (exit yield). 

We believe that the real negotiation is about to begin. The guidelines are not too different from the latest expectations, and are enough broad to open room for a negotiation. The government is unlikely to pay the upcoming coupons on NY law bonds scheduled for April 22, and will probably use the legal period (30 days) to cure the default in order to nudge creditors toward an agreement. We believe that President Fernández’s priority will be to avoid a default, as Argentina prepares for the end of the pandemic crisis. The clock is ticking.


The government announced that Nelson Teich will replace Luiz Mandetta as Minister of Health. Mr Teich is doctor specialized in oncology, and is also partner at Teich Health Care, a Health Services consulting firm. 

Coronavirus update: the latest official information from the Ministry of Health is that Brazil has 30,425 confirmed cases (up by 2105, vs. 3058 yesterday), with 1924 confirmed deaths (up by 188, vs 204 yesterday).

Day Ahead: The War-budget constitutional amendment is expected to be voted for the second time in Senate today. The bill creates a separate budget, with the purpose of expediting fiscal relief measures to companies and workers during the pandemic, while also helping to prevent that emergency expenditure measures undertaken this year do not perpetuate over time. Additionally, the bill gives more instruments for the Central Bank to act in the crisis, such as the authorization to buy and sell government and corporate debt.


Day Ahead: The monthly coincident activity indicator (ISE) for February will be published at 12:00 PM (SP time). In January, activity dynamics remained upbeat with ISE growing 3.5% YoY (3.6% in December), boosted by retail. Still elevated retail sales in the month suggest another solid growth print (4.0% expectation). Looking further ahead, coronavirus and lower oil prices are significant headwinds likely leading to activity contraction.

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