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Goldman Sachs: Restrictive Monetary Policy Stance Is Still Warranted

CHILE
  • Goldman Sachs expect the MPC to remain on hold, keeping its policy rate unchanged at 11.25%. In their view, the restrictive monetary policy stance is still warranted given (1) the very high and highly disseminated inflation; (2) above-target short- and medium-term inflation expectations; (3) resilient economic activity; (4) very wide current account deficit; (5) heightened currency volatility; and (6) central banks in advanced economies that are still rising rates.
  • The MPC minutes stroke a dovish reading of the economy. In general, the MPC deemed that the domestic macro backdrop showed no substantial differences with respect to the central bank’s forecasts in the September IPoM. However, the MPC noted that cumulative inflation in Aug-Sep exceeded their forecast and non-mining GDP for August also surprised the upside.
  • Since the last meeting GS highlight the lower-than-expected headline and core inflation prints in October. Inflation expectations have moderated but remain above target and are higher than the central bank’s forecast. Real economic activity, in turn, surprised to the upside in Sep and Oct. A rebound in mining activity was an important driver of growth over the period but non-mining activity also showed resilience either in the services or commerce sectors of the economy.
  • As a result, activity in 2022 is on track to notably outperform the central bank’s real GDP growth estimate of 1.75%-2.25%. Lastly, the current account during 3Q2022 recorded a large US$9.4bn deficit (13.6% of Q3 GDP) and as a result is tracking at a wide 9.8% of GDP (-US$30bn) on a 12-month rolling basis.
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