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JPMorgan on BCCh - Forecast 125Bp Hike In March

CHILE
  • The Board highlighted concerns on inflation dynamics, as illustrated by December CPI ex-volatiles with special emphasis on goods prices. The Board noted significant risks to the inflation evolution ahead in a context of already elevated inflation expectations. There was also a mention to inflation and activity printing somewhat above the baseline levels presented in the 4Q21 Monetary Policy Report (MPR).
  • In all, the statement suggests an anxious Board, uneasy with the fact their baseline case for inflation got compromised just days after its publication.
  • The minutes will help to best grasp whether the Board is validating what’s already in the price, or, more likely given the overall wording of the statement, whether the corridor ceiling is to be revised higher for the March Monetary Policy Report.
  • JPM expect the policy rate at 6.75% in March. Their baseline scenario ahead is for consumption to decline ahead from unsustainable high levels and inflation to ease in 2H22. But JPM also recognize the Board’s revealed reaction function, with higher weight allocated to reanchoring inflation expectations than in prior cycles.
  • JPM thus revise their baseline scenario for the monetary policy rate to reach 6.75% by March (+125bp). They also bring forward the start of an easing cycle to December 2022, and pencil in the policy rate converging to 4.5% by end 2023.
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