Itaú BBA - The calm before another storm?

Scenario Review - Chile

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The calm before another storm?

Março 6, 2020

Caution on future rate moves will prevail, but Fed rate cuts in response to the expected global activity slowdown makes our call for 50 bps


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

 

 While the economy is rebounding well above expectations from the October shock, the coronavirus outbreak limits our growth forecasts. We retain our 1.2% growth expectation for the year, with some expected improvement to 1.9% in 2021. Besides a weaker global economy, domestic uncertainties (as highlighted by calls for more protests in March) will likely curb growth.

 The recent peso depreciation did not reignite FX intervention, as it is mostly due to external rather than domestic factors. Nevertheless, increased global uncertainty means a year-end exchange rate closer to 790 peso per dollar (we previously expected 780), with a significantly weaker currency for the average of the year compared to our previous scenario. Lower expectations of global growth and its effect on commodity prices point to somewhat slower current account deficit adjustment this year (0.9% of GDP vs. 0.4% previously; 3.2% for 2019).

 We expect inflation to remain under pressure in the coming months, as pass-through pressures persist, before ending the year at a near-target level of 3.3%. Weak internal demand and lower oil prices amid anchored inflation expectations would diminish pressures ahead. 

 Caution regarding future rate moves will prevail as the central bank opts to accumulate and digest additional information. Nevertheless, given the increased probability that central banks across the globe ease monetary policy in response to the expected activity slowdown, as suggested by the recent Fed move, our call for 50 bps of further easing (to 1.25%) in Chile is becoming more likely.

 

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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