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Analysts See Current Account/Reserves Predicament Weighing On CLP

CHILE
  • Analysts continue to cite Chile’s record current account deficit as the main concern that will keep the peso under pressure long after the central bank’s $25 billion intervention program has finished.
  • “The deficit has reached levels that raise alarm bells,” said the chief economist at Banco de Credito e Inversiones in Santiago. “Excessive spending in 2021, along with a significant reduction in household savings has led to a dangerous widening of the deficit, which should be corrected with urgency.”
  • Additionally Wells Fargo have said the rejection of new constitution will elevate and prolong uncertainty, contributing to a weaker Chilean peso in the short term.
  • They added that “FX reserves in Chile were already inadequate, and using 50% of the central bank’s external buffers should leave the peso more vulnerable to exogenous shock scenarios as well as less credit-worthy”. (BBG)
  • Wells Fargo expects multiple sovereign credit downgrades over next 12 months, which should contribute to peso weakness and help USD/CLP reach CLP1000 again in 2023.
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