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Barclays Say BCCh Cannot Open The Door For Cuts Soon

CHILE
  • Barclays expect the BCCh to remain on hold at the December meeting next week, leaving the policy rate at 11.25%. The focus will be on forward guidance and the monetary policy corridor published in the IPoM. They do not think the BCCh can open the door for cuts soon.
  • Instead, Barclays expect the BCCh to reiterate the forward guidance in the last monetary policy decision that the policy rate will "remain at the current levels for as long as needed to ensure that inflation converges to target."
  • Barclays still do not think the BCCh will have room to cut in Q1 23. They expect the output gap to remain positive in Q1 23 and inflation to decline only gradually towards 5.6% in 2023. Also, 2y forward inflation expectations remain above target, despite the recent decline.
  • Moreover, Chile's external vulnerabilities imply risks of inflation pass-through if the BCCh were to cut too early. The current account deficit hit 9.8% of GDP in Q3 22, and a large portion of the latest widening has been financed with international reserves sales. Barclays expect the current account deficit to shrink next year, but not very quickly, given that they forecast a soft landing, with 2023 growth at 0.0%.
  • Besides the policy corridor, updates to the BCCh projections will also be relevant. Barclays expect the BCCh to revise up its 2022 growth forecast (which was a 1.75-2.25% range in the September IPoM), in line with stronger than expected economic activity data in September and October, and closer to Barclays’ higher than consensus growth forecast of 2.7%.
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