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CHILE: Deutsche Bank Says Inflation Expectations Concerns Support CLP Longs

CHILE
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  • Deutsche Bank says that conditions remain supportive of the Chilean peso, as the uptick in domestic inflation expectations raises the bar for the BCCh to continue lowering rates. They see this as continuing to support their constructive CLP view, which has been aided by a recent change in positioning indicators, with short CLP bets being unwound recently, coupled with consistent USD selling flows by the Finance Ministry.
    • DB notes that inflation expectations are increasingly gaining relevance in BCCh policy deliberations. They featured prominently in the last meeting’s statement and minutes, and board members have explicitly referred to them in recent presentations to the public.
    • DB believes the BCCh waited until expectations from their own surveys became unanchored before demonstrating greater concern and incorporating this into their more hawkish stance.
    • Market pricing has taken notice of this, with 1-year rate pricing increasing, along with the increase in breakevens. If in late 2024 the market was pricing cuts for 2025, that's no longer the case.
    • Re-anchoring inflation expectations becomes a relevant factor to limit CLP depreciation, and the latest BCCh hawkish shift seems to suggest they are onboard with this.
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  • Deutsche Bank says that conditions remain supportive of the Chilean peso, as the uptick in domestic inflation expectations raises the bar for the BCCh to continue lowering rates. They see this as continuing to support their constructive CLP view, which has been aided by a recent change in positioning indicators, with short CLP bets being unwound recently, coupled with consistent USD selling flows by the Finance Ministry.
    • DB notes that inflation expectations are increasingly gaining relevance in BCCh policy deliberations. They featured prominently in the last meeting’s statement and minutes, and board members have explicitly referred to them in recent presentations to the public.
    • DB believes the BCCh waited until expectations from their own surveys became unanchored before demonstrating greater concern and incorporating this into their more hawkish stance.
    • Market pricing has taken notice of this, with 1-year rate pricing increasing, along with the increase in breakevens. If in late 2024 the market was pricing cuts for 2025, that's no longer the case.
    • Re-anchoring inflation expectations becomes a relevant factor to limit CLP depreciation, and the latest BCCh hawkish shift seems to suggest they are onboard with this.