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JPMorgan on BCCh: Policy Rate Should Converge to 1.5% by December.

CHILE
  • The statement reads in line with their base case, with emphasis on the economic recovery pace, labor market and inflation. The forward guidance is for the continuation of a gradual removal of the monetary impulse ahead. Also, in line with the 2Q21 policy report, the Board anticipates that the monetary policy rate is to remain below its neutral value throughout the two-year policy horizon.
  • JPM maintain their base case for a stable tightening pace through the remainder of the year. If so, the policy rate should converge to 1.5% by December. For December 2022 they expect the policy rate at 3%, slightly below the neutral range (revised to 3.25-3.75%).
  • But, leaving the Fed reaction function aside, the policy rate forecast for 2022 is highly dependent on the structural fiscal adjustment to be processed next year, which at a time depends on the election cycle outcome and the new Constitution.
  • Less fiscal consolidation effort than what the CBC entertains in its base case may force the hand of the Board into above-neutral and positive real rates.
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