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JPMorgan on BCCh: Base Case Scenario That Policy Rate Climbs To 7.75%

CHILE
  • JPMorgan expect the CBC to hike the policy rate by 175bp, and they think the forecast risk is skewed to a 200bp increase rather than 150bp. While the global economy faces a negative supply shock, the impact on Chile’s external accounts so far has been muted as price increases for mining exports more than offset the higher energy import bill. Yet, inflationary pressures on food and energy prices have resumed, only partly offset by the stronger currency and gasoline subsidies.
  • Compounding this inflationary shock, is strong momentum in services prices stemming from the overheated economy and indexation. The risks to the nontradable inflation outlook are skewed to the upside due to the new administration’s economic agenda including a 4%-5% of GDP structural fiscal expansion and a planned 14% increase in the minimum wage.
  • A new pension fund withdrawal (to which JPM attach below-50% probability) poses some additional risk.
  • Although these factors would point to higher rates, JPMorgan maintain their base case scenario that the policy rate climbs to 7.75%, below what is priced by the market. They will thus pay due attention to the new forward guidance.
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