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Goldman Sachs See BCCh Rate Guidance As Unwarrantedly Dovish

CHILE
  • The MPC stressed that the scenarios that defined the June Inflation Report (IR) policy rate corridor limits are now unlikely to materialize. In all, in their assessment the MPC rate guidance is unwarrantedly dovish medium-term.
  • The discussion on inflation in the post-meeting policy statement was terse, with MPC comfortable with the inflation environment, particularly with contained core, despite the expectation of the continuation of a rapidly closing output gap.
  • In fact, GS find it somewhat dissonant the fact that the output gap is expected to turn positive in 2H2021, and remain so throughout 2022, and headline and core inflation are projected to remain above the target, with the guidance that the policy rate will remain below-neutral over the next 2 years and that monetary policy will continue to support the economy.
  • In their assessment, much higher than previously expected growth, significant improvement of the covid backdrop, above target headline and core inflation and supportive external backdrop have reduced to a very significant extent the need for monetary policy to continue to support the recovery.
  • Furthermore, the unsettled political and policy backdrop, very loose fiscal policy, and global inflation fears, also support a conservative calibration of monetary policy. At this juncture GS expect the policy rate to reach 1.50%-1.75% by end-2021, and further up to 2.75%-3.00% by end-2022.
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