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Deutsche Bank Expect BCCh To Cut To 4% By July

CHILE
  • Deutsche Bank view the last couple of BCCh policy decisions as clear indications of the central bank’s preference for a speedy and full normalisation of monetary conditions, having gained conviction in the benign inflation outlook. As a result, they now expect the policy rate to be cut to 4% by July (vs 4.5% before).
  • In their view, CLP shows vulnerability to a faster easing cycle by the BCCh. At current levels, valuations are stretched, but markets may test BCCh’s prioritisation of rates vs. FX, while pass-through is low. They see USDCLP closer to 950 than 900 in the coming weeks, in the absence of a material pick up in USD sales by the Ministry of Finance and would sell USDCLP downside to buy MXN and BRL on weakness.
  • On rates, Deutsche Bank had expected the 100bp policy rate cut yesterday, but see risk skewed toward even faster cuts and/or a lower terminal policy rate than priced (possibly 3.0-3.5%). As a result, they keep their 6-month Camara receiver on this view and expect the curve to bull-steepen on a very low term-premium and the yield differential against US rates.
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