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Chilean Rate Decision Takes Focus Headed Into Tuesday Close

CHILE
  • Full preview here: https://roar-assets-auto.rbl.ms/documents/11694/MN...
  • Widely expected to hike the key interest rate by 50bps to 1.25%. Inflationary pressures, an uncertain political backdrop and a weakening Peso may contribute to a more hawkish tone from the central bank, which has resulted in some analysts revising their year-end rateforecasts to incorporate more aggressive tightening.
  • Sustained pressure on headline CPI inflation has seen the rate pierce the top end of the bank's tolerance band, showing above 4% for the first time since 2016.
  • Q2 GDP confirmed market optimism surrounding the economic recovery. The release prompted a number of analysts – both local and foreign – to boost their near-term growth forecasts for Chile. Consensus for growth into year-end is now around 10%, 1.5ppts above theearlier forecasts. Output was boosted by a surge in consumption, driven by booming fiscal stimulus (the IMF estimate Chile's fiscal response to have more than offset the economic impact of COVID) and a further drawdown of pension savings, estimated to amount to close to $50bln.
  • The central bank have warned that another accelerated round of pension withdrawals could add to the argument for more expedited policynormalization.
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