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Goldman Sachs On BCCh Minutes: October 75bps Hike Warranted

CHILE
  • Overall, the minutes show that the MPC turned visibly more hawkish given significant changes to macro outlook: overheating domestic demand, sizeable positive output gap, and sharp deterioration of the current and prospective inflation outlook amidst a balance of risks for inflation still skewed to the upside.
  • In their assessment, given the backdrop of an overheating economy (positive output gap and visible deterioration of the external accounts despite favourable terms of trade) and above-target inflation throughout the relevant horizon for monetary policy, the monetary stance needs to eventually move into slightly restrictive territory.
  • The upcoming September inflation print and legislative developments around a potential fourth withdrawal of pension savings will ultimately determine whether at the Oct 13 meeting the MPC will follow-up with another 75bp hike or go back to a milder 50bp hike. In their view, another 75bp rate hike is warranted.
  • At this juncture GS expect the policy rate to reach 2.50%-2.75% by end-2021, and further up to a slightly restrictive 4.00%-4.25% by end-2022, i.e., modestly above-neutral.
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