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- Following Wednesday's rate decision, Barclays now expect the policy rate at 3.75% in the next meeting, with upside risks. They add that while the BCCh will likely remain data dependent, the political context could prompt the bank to hike faster. Barclays also bring forward their expectations for the policy rate to reach 4.75% to May 2022, from July 2022 previously.
- They add that they see risks significantly tilted to the upside and expect the BCCh to remain strongly data dependent, with a much more hawkish stance in scenarios in which the pensions withdrawals legislation is approved in Congress, inflation expectations continue to de-anchor and/or there is further pressure on CLP because of political risks.
- In their view, the political context could prompt the BCCh to accelerate the normalization pace. Approval of the pensions withdrawals legislation and the left-wing candidate Boric winning the presidential election in November appear as relatively likely scenarios.
- Barclays expect the very front-end of the curve to steepen as the market prices further BCCh front-loading, while the curve should bear flatten against the belly and long-end. They expect the currency to strengthen in coming days given the policy rate surprise, which should allow CLP to correct some of its recent underperformance. However, the USDCLP retracement could be temporary and idiosyncratic factors are likely to continue to weigh on the CLP in the medium-term. They retain their long a USDCLP 1x1.5 call spread recommendation ahead of the November-December elections.