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Barclays on BCCh: Now Expect 125bp In March, Terminal Rate Of 7.50%

CHILE
  • On top of inflationary pressures, Barclays think that the BCCh is also responding to a global context of more hawkish central banks. The communique mentions that “inflation has continued to rise in several economies, and central banks have intensified their move towards the withdrawal of monetary stimulus.”
  • Taking into account the recent rise in inflation expectations, as well as the BCCh guidance that it foresees monetary policy to be at the upper bound of the corridor in the short term, Barclays revise their call for the March meeting to 125bp. Besides that, they expect the BCCh to revise up the corridor for the policy rate in the March meeting. Accordingly, they also revise up their forecast for the terminal rate to 7.5%.
  • Barclays see limited risk for their 5s10s steepener. The more hawkish central bank is likely to bring pressure to front end rates, particularly at the nearest policy meeting dates. However, front-loading hikes would reduce the need to bring the terminal rate to higher levels later in the cycle.
  • The consistent effort to keep inflation expectations anchored should reduce inflationary risks in the medium term, which should bode well for risk premium compression in the belly. As such, Barclays think that the 5y rates should not be unduly pressured by the hawkish stance, and they continue paying the 5s10s Camara spread. They would use any post-BCCh flattening as better entry levels to engage in their long-end steepener.

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