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Barclays: Additional Fiscal Stimulus Should Lead BCCh To Hike Faster

CHILE
  • With more stimulus announced, Barclays now expect a 2.0% policy rate by year-end, with two 50bp hikes (in October and December) after a 25bp hike in August, with risk of the 2x50bp hikes starting in August.
  • IMACEC printed higher than projected, leading them to revise up their already higher than consensus forecast to 9.5% from 8.5% previously, with risks still tilted to the upside, particularly after the confirmation of the extension of the Universal IFE until November.
  • Furthermore, CPI printed significantly higher than expected in July, at 0.8% m/m vs 0.4% consensus expectation (4.5% y/y up from 3.8% y/y). Expectations have also been edging up. Expectations for one year ahead remain above target at 3.40%, and for two years ahead rose to 3.20% from 3.10% previously, according to the BCCh's financial traders survey.
  • They expect forward guidance to turn more hawkish in August than it was in the July meeting statement, signalling a faster hiking cycle in the following meetings.
  • Next year, they still expect the normalisation pace to be gradual at 25bp per meeting, taking the policy rate to 3.25% by December 2022. This is assuming that the transfer expansion effectively ends in November and that spending is cut significantly next year from this year's very high levels.
  • Pricing of additional tightening can favour payers in the front-end but carry/roll-down is prohibitive.
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