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Downside Surprise Opens Potential For More Aggressive BCCh Easing

CHILE
  • Markets are having a substantial reaction to the much lower than expected inflation data in Chile this morning. Analysts have noted that the significant fall is in stark contrast to the 0.3% average rise for December in the previous five years, with the print driven by declines in ten of the 12 key components (potentially mean reverting from November), partially offset by an increase in prices for restaurants and hotels, due to the holiday season, and an unchanged reading for tuition fees.
  • USDCLP has risen 1.20% since the open, with the pair breaching the 900 handle in recent trade as well as last week’s highs in the process. The downside pressure for the peso has been accompanied by a further relief rally for the Camara curve (re-steepening), with roughly a 25bp adjustment lower for 1-year Camara swap rates. Note that key resistance in USDCLP is at 924.67, the Nov 13 high.
  • Pantheon think the headline CPI rate will fall to about 3.0% during Q1, and hover around that level during most of the year. Still-subpar economic growth, a weak labour market, and the lagged effect of lower oil prices in recent months likely will keep underlying inflation pressures under control. Admittedly, these effects will be partially offset by the CLP fall in recent months. Still, the rapid disinflation picture will allow the BCCh to accelerate the pace of monetary easing over its coming meetings.
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