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Goldman Sachs Believe Broader USD Move or BCCh Caution Needed to Support CLP

CHILE
  • According to Goldman Sachs, CLP has underperformed its typical sensitivities to global factors since May 2023 compared to its peers. This is reflective of the BCCH’s reaction function being more skewed to the domestic data (near-target inflation and subdued growth) than to the external backdrop that would argue for a slower pace of normalisation.
  • GS says if there is a stabilisation in China growth sentiment, then CLP could squeeze stronger, however they think a more sustained recovery in the currency also requires a broader move in the USD or for Chile's central bank to take a more cautious approach to easing.
  • In contrast, COP has appreciated by more than 'predicted', which could reflect that easing expectations remain relatively constrained, and FX carry elevated.

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