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JPMorgan Maintain Base Scenario Following BCCh Minutes

CHILE
  • JPMorgan maintain in their base line the central bank starting to ease in early 3Q23. They expect the May and June CPI reports to show additional consolidation lower of headline (converging to 8.2%oya by the end of 2Q), and for core to ease to 9.6%oya by then.
  • In addition, domestic demand and particularly consumption are also expected to continue their adjustment, assuming the fiscal expansion that drove government consumption higher in 1Q23 stalls. Additionally, the narrower basic balance deficit should continue to underpin the real exchange rate.
  • Activating the countercyclical capital buffer requirement for 0.5% of risk weighted assets is likely to exacerbate the contractive policy stance, thus weighing negatively on activity ahead.
  • The Board repeated that the recent evolution of the economy has unfolded in line with the central scenario presented in the monetary policy report. If so, additional restriction should be offset in time, which in JPMorgan’s view reinforces their base case for the Board to prevent scenarios of higher real ex-ante rates ahead by trimming the policy rate, starting in 3Q23. Otherwise, the real ex-ante rate will continue climbing to levels that would severely undermine the capacity of the economy to prevent a deeper contraction of the output gap into negative territory in the coming quarters.
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