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CHILE: Scotiabank Says External Risks May Prevent Further Cut In December

CHILE
EM BulletBulletGlobalEmerging Market NewsRegion
  • Scotiabank notes that the BCCh policy statement did not present an explicit cautious bias, but it did make it clear that the external situation will be monitored with particular attention. The bias was relatively neutral, but the Middle East is mentioned twice, which paves the way to use this, in case the risk materialises, as an argument to maintain the policy rate in December.
  • Indeed, the resurgence of risks from the external scenario was one of the main elements of concern raised in the September IPoM. Given the rise in long-term interest rates in Chile and depreciation of the peso recently, Scotiabank believes that these could be part of the arguments to proceed with greater caution and make a technical pause.
  • Scotiabank expects September’s GDP to grow by 1.5-2.5% y/y, which would leave growth above the IPoM’s projection for Q3. Their expectation, for now, is that a further 25bp cut in December is still far from guaranteed. Better GDP figures, higher public spending and eventual intensification of external risks could justify a technical pause, especially in view of the behaviour dependent on short-term figures that has characterised the central bank.
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  • Scotiabank notes that the BCCh policy statement did not present an explicit cautious bias, but it did make it clear that the external situation will be monitored with particular attention. The bias was relatively neutral, but the Middle East is mentioned twice, which paves the way to use this, in case the risk materialises, as an argument to maintain the policy rate in December.
  • Indeed, the resurgence of risks from the external scenario was one of the main elements of concern raised in the September IPoM. Given the rise in long-term interest rates in Chile and depreciation of the peso recently, Scotiabank believes that these could be part of the arguments to proceed with greater caution and make a technical pause.
  • Scotiabank expects September’s GDP to grow by 1.5-2.5% y/y, which would leave growth above the IPoM’s projection for Q3. Their expectation, for now, is that a further 25bp cut in December is still far from guaranteed. Better GDP figures, higher public spending and eventual intensification of external risks could justify a technical pause, especially in view of the behaviour dependent on short-term figures that has characterised the central bank.