Itaú BBA - Shock therapy

Scenario Review - Chile

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Shock therapy

Setembro 12, 2019

The added monetary and fiscal stimulus measures would support some recovery next year

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

• Activity in 2Q19 was weak and showed slowing consumption, while investment gained momentum. Considering the current set of data, we now see growth coming in at 2.2% this year (2.4% previously; 4% last year). The added monetary and fiscal stimulus measures would support some recovery next year, to 2.9%.

• We expect core service inflation to continue rising only gradually toward the target. However, the recent upside surprises will likely help headline inflation to end the year at the 3.0% target (2.8% expected previously; 2.6% in 2018). Next year, we see inflation at 2.8% as the continued widening of the output gap limits inflationary pressures. 

• The central bank cut the policy rate by another 50 bps, to 2.0%, and surprisingly signaled that more easing could come. We now expect the easing cycle to end with the policy rate at 1.5% (2% previously), but the timing of additional cuts is unclear.
 

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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