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Goldman Sachs Say Risk Management Considerations Point To 75BP Hike

  • The GS modal call is for the MPC to hike its policy rate by 75bp to 9.75%. Given the still very challenging inflation backdrop, trade balance deterioration, lingering policy and political uncertainty and, above all, recent significant CLP depreciation (15% since the June MPC meeting) GS are of the view that the most appropriate monetary response is to hike the policy rate by another 75bp, to 9.75%; repeating the move of the previous meeting.
  • However, they assign a 35% probability of a milder 50bp hike, given the central bank signalling at the last meeting of “smaller adjustments” after the June 7 MPC meeting.
  • In Goldman’s assessment, beyond inflation, the monetary authority is being challenged to anchor a drifting currency. Given the central bank revealed strong preference not to intervene in the FX market, GS are of the view that risk management considerations should lead the central bank to deliver a hawkish signal through a 75bp rate move, which would be in line with what is currently priced in the curve, or run the risk that a milder 50bp rate is perceived as dovish and invites even further pressure on the CLP.

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