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Goldman Sachs Expecting A Terminal Rate Of 9.75%

CHILE
  • Goldman Sachs expect the BCCh to hike its policy rate by 100bp to 9.25%. They assign a 30% probability of a milder 75bp increase given the dovish biases the MPC has revealed in past meetings.
  • Since the May meeting, inflation continued to surprise to the upside with upward pressures from both demand (the output gap remains positive, commerce activity remains vigorous and households’ still have substantial liquidity) and costs (high commodity prices, high producer prices (26.2% y/y) and nominal wage growth (7.4% y/y)).
  • In addition, GS anticipate another significant inflation print in May (1.0% m/m) which should drive annual headline inflation above 11.0%.
  • The day after the MPC Meeting, the central bank will publish its June Monetary Policy Report (IPoM). GS expect the central bank to update their forecast for inflation and to provide a detailed discussion of the outlook for monetary policy including an upward revision to their monetary policy interest rate corridor with some hikes shown for the next couple of meetings. In general, the central bank’s IPoM model has shown significant sensitivity to the output gap, and given the central bank’s expected growth path (output gap to close in 4Q2022, slightly negative in 2023), the IPoM policy rate corridor is likely to show some easing from the high restrictive policy rates as soon as the first half of 2023.
  • Yet, their econometric work suggests that the output gap has a moderate impact on inflation in Latin America, explaining only approximately 5% of the variation of headline inflation and 10% of core. Furthermore, private consumption has remained resilient and household’s still hold significant liquidity in their checking accounts.
  • Overall, GS believe that the MPC will need to raise the policy rate further in the next couple of meetings to a terminal rate of 9.75%, and they expect monetary policy to remain tight over the relevant policy horizon.
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