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CHILE: HSBC Says BCCh Needs To Signal Sustained Pause To Avert CLP Weakness

CHILE
BulletEM BulletEmerging Market News
  • With the market already expecting a hawkish hold from the BCCh today, HSBC thinks that a failure to deliver such a message could see the CLP reverse recent gains. Various measures of inflation expectations have risen in recent days, reflecting the weaker FX and various supply-side concerns. This suggests that the currency level will remain an important consideration for the central bank.
    • HSBC expects that the BCCh will continue to forecast rate cuts over the policy horizon, given softening growth and fact that most of the recent inflationary pressure has been supply-driven, but will need to signal a sustained pause in the near term or risk sending the CLP weaker.
    • HSBC forecasts the policy rate to remain on hold at 5% in H1 but sees a window for a further 50bp of rate cuts in H2 2025, only if global sentiment improves.
    • They do not expect further CLP gains, barring a continued EM risk rally or improvement in China sentiment, and see USDCLP remaining broadly in a 980-1,020 range in the coming weeks.
    • Most positives have already been priced in and global uncertainty is set to remain high. Hacienda is likely to sustain its $300mn weekly selling pace, but HSBC sees risks that this pace eventually declines, given a faster-than-expected clip of selling in recent weeks.
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  • With the market already expecting a hawkish hold from the BCCh today, HSBC thinks that a failure to deliver such a message could see the CLP reverse recent gains. Various measures of inflation expectations have risen in recent days, reflecting the weaker FX and various supply-side concerns. This suggests that the currency level will remain an important consideration for the central bank.
    • HSBC expects that the BCCh will continue to forecast rate cuts over the policy horizon, given softening growth and fact that most of the recent inflationary pressure has been supply-driven, but will need to signal a sustained pause in the near term or risk sending the CLP weaker.
    • HSBC forecasts the policy rate to remain on hold at 5% in H1 but sees a window for a further 50bp of rate cuts in H2 2025, only if global sentiment improves.
    • They do not expect further CLP gains, barring a continued EM risk rally or improvement in China sentiment, and see USDCLP remaining broadly in a 980-1,020 range in the coming weeks.
    • Most positives have already been priced in and global uncertainty is set to remain high. Hacienda is likely to sustain its $300mn weekly selling pace, but HSBC sees risks that this pace eventually declines, given a faster-than-expected clip of selling in recent weeks.