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GS Say Risks For Additional Non-Policy Rate Options Remain Elevated

LATAM FX
  • Goldman Sachs note that macroeconomic pressures are likely to remain for CLP, given a particularly wide current account deficit in Chile, few signs that inflation has slowed despite a sharp and sustained hiking cycle, ongoing domestic uncertainty, exposure to wobbles in Chinese growth and the copper price. Additionally, despite the recent shift lower in USD/CLP, this cross still stands over 10% higher than early-June levels which still suggests an upside inflation risk through the currency channel.
  • In brief, with global and domestic macroeconomic pressures for currency weakness as-yet unabated in Chile, and FX reserves relatively limited compared to other markets, FX investors may eventually begin to test USD/CLP upside once again if the global environment deteriorates.
  • If USD/CLP moves sharply higher (or lower) in coming days, recent price action has suggested significant spillovers to LatAm FX and particularly to COP, which—despite no FX intervention program in Colombia—took significant comfort in CLP strength during the early parts of last week.
  • In Goldman Sachs’ view, risks for additional non-policy rate options for stabilizing currencies in the region may remain elevated until pressures on external and internal imbalances show signs of softening.
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