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CHILE: Itaú Sees BCCh Remaining On Hold All Year

CHILE
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  • With domestic inflation expectations showing signs of rising, Itaú expects the BCCh to keep rates on hold next week. They note that while the key two-year median analyst expectation is anchored to the 3% target, the distribution shows more than 40% expect higher inflation, up from 26% in September. Itaú’s call to eliminate rate cuts in the US supports a higher domestic rate path. They now see the policy rate remaining at 5.00% this year, up from 4.50% previously.
  • The downside CPI surprise in December was led by volatile items linked to Cyber sales events that will likely rebound in January. Additionally, an expected 10% accumulated electricity price hike at the start of the year will keep price pressures elevated, while a higher expected average CLP path will add to inflation pressures. Itaú now expects inflation to end the year at 4.0% (vs. 3.7% previously).
  • On activity, leading indicators point to an investment recovery in 2025. However, latest data also suggest that construction will remain sluggish ahead. Itaú continues to expect the economy to grow by 1.9% this year, but sees risks to activity tilted downwards amid higher inflation and interest rate expectations. These growth headwinds could also challenge fiscal revenue estimates and, after the significant revenue forecast miss in 2024, another target miss would tarnish Chile’s fiscal credibility further.
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  • With domestic inflation expectations showing signs of rising, Itaú expects the BCCh to keep rates on hold next week. They note that while the key two-year median analyst expectation is anchored to the 3% target, the distribution shows more than 40% expect higher inflation, up from 26% in September. Itaú’s call to eliminate rate cuts in the US supports a higher domestic rate path. They now see the policy rate remaining at 5.00% this year, up from 4.50% previously.
  • The downside CPI surprise in December was led by volatile items linked to Cyber sales events that will likely rebound in January. Additionally, an expected 10% accumulated electricity price hike at the start of the year will keep price pressures elevated, while a higher expected average CLP path will add to inflation pressures. Itaú now expects inflation to end the year at 4.0% (vs. 3.7% previously).
  • On activity, leading indicators point to an investment recovery in 2025. However, latest data also suggest that construction will remain sluggish ahead. Itaú continues to expect the economy to grow by 1.9% this year, but sees risks to activity tilted downwards amid higher inflation and interest rate expectations. These growth headwinds could also challenge fiscal revenue estimates and, after the significant revenue forecast miss in 2024, another target miss would tarnish Chile’s fiscal credibility further.