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MNI: PBOC Sets Yuan Parity Higher At 7.1315 Fri; -0.52% Y/Y

CHINA PBOC CONDUCTS CNY59 BILLION VIA 7-DAY REVERSE REPOS FRI

CHINA SETS YUAN CENTRAL PARITY AT 7.1315 FRI VS 7.1285

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BCCh Review - Analyst Notes

CHILE
  • Morgan Stanley: The BCCh shifted gears and under-delivered on consensus expectations, suggesting that the bulk of the tightening work is now behind us. This is likely to push the local curve steeper and reduce policy support to CLP amid lower front-end real rates, as near-term inflation risks remain for now.
  • Within the IPOM, MS expect to see a baseline peak level for rates in the corridor of 8.00-8.25% by June or July, although the upper bound should show something closer to 9.25-9.50%.
  • Goldman Sachs: In a dovish forward guidance paragraph, the MPC points to a slowing in the pace of monetary policy tightening.
  • GS note the noticeably high and higher-than-expected inflation with both demand-pull (output gap remains positive) and cost-push upward pressures (high prices of commodities), the still deteriorating inflation expectations, the somewhat uncertain policy environment due to the ongoing drafting of a new constitution, and a more hawkish FOMC, all support the case for the MPC to drive the policy rate towards a more restrictive stance and for policy to remain at a restrictive level over the relevant policy horizon. All in all, GS expect the MPC to drive the monetary policy rate further up in 2022, to 8.50%.
  • JPMorgan: While not explicit, the statement suggests a key reason behind such a ‘dovish’ hike is the global shock associated with the Ukrainian conflict, a negative supply shock, with negative impact on global activity and positive on inflation.
  • In all, the statement seems to break with the prior two and a half quarters of hawkish stance, with the new Board composition leaning on the dovish side, aiming to engineer a soft landing. That amid a structural fiscal expansion and institutional uncertainty on the domestic front, and higher inflation coupled with more hawkish Fed on the external side.
  • The 1Q22 monetary policy report is to be published tomorrow, and should help to clarify how the Board entertains re-anchoring inflation expectations in the described environment.
  • Barclays: The policy corridor that will be published tomorrow will also likely surprise on the dovish front, as the market was expecting a terminal rate close to 9.0%. Instead, the central scenario of the policy corridor could be closer to our call of 8.0% for the terminal rate. This would still represent a sharp rise from the corridor published in the December IPoM.
  • However, Barclays think market pricing can remain closer to the top of the new corridor, which should limit downside in front-end yields, as inflation and inflation expectations remain elevated and have not peaked yet.
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