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CHILE: Itaú Says Labour Market Slack Still Supports Gradual Rate Cuts To Neutral

CHILE
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  • Today’s better-than-expected unemployment data for September came amid a 0.8% y/y increase in the participation rate to 61.7% and 2.4% y/y increase in employment. At the margin, however, employment levels fell 0.2% from Q2, resulting in the seasonally adjusted unemployment rate reaching 8.6% in Q3, up 0.2pp from 2Q
  • Itaú believes that even though the unemployment rate should fall in the coming months, reflecting seasonal patterns, the labour market should still show slack. Flow dynamics suggest job creation should remain subdued, as labour demand is weak. In this context, a more meaningful improvement in private consumption may be mitigated, in addition to the effect on household budgets from rising electricity prices. Coupled with anchored two-year inflation expectations and weak commercial lending, Itaú still sees BCCh gradually lowering the policy rate to neutral over the coming quarters, including a 25bp cut to 5% in December.
  • Amid a dip lower in copper prices, USDCLP is now 0.7% higher on the day around 954. The move brings the pair back above resistance at 951.80, the Sep 10 high, and this exposes the 960.00 handle, ahead of 966.61, the Aug 5 high and a key short-term resistance.
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  • Today’s better-than-expected unemployment data for September came amid a 0.8% y/y increase in the participation rate to 61.7% and 2.4% y/y increase in employment. At the margin, however, employment levels fell 0.2% from Q2, resulting in the seasonally adjusted unemployment rate reaching 8.6% in Q3, up 0.2pp from 2Q
  • Itaú believes that even though the unemployment rate should fall in the coming months, reflecting seasonal patterns, the labour market should still show slack. Flow dynamics suggest job creation should remain subdued, as labour demand is weak. In this context, a more meaningful improvement in private consumption may be mitigated, in addition to the effect on household budgets from rising electricity prices. Coupled with anchored two-year inflation expectations and weak commercial lending, Itaú still sees BCCh gradually lowering the policy rate to neutral over the coming quarters, including a 25bp cut to 5% in December.
  • Amid a dip lower in copper prices, USDCLP is now 0.7% higher on the day around 954. The move brings the pair back above resistance at 951.80, the Sep 10 high, and this exposes the 960.00 handle, ahead of 966.61, the Aug 5 high and a key short-term resistance.