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JPMorgan on Chile MPR & BCCh Policy: Adjust Terminal Rate To 10.25%

CHILE
  • The MPR revised base case shows revisions higher for 2022 consumption and GDP, together with headline and core inflation. For 2023, the revised macro base case now assumes negative annual GDP growth and very low headline inflation by the end of the year (2.7%oya). That said, Dec 2023 core inflation was revised higher to 3.8%.
  • The other key takeaway from the MPR is the quantitative quarterly forward guidance expressed by the monetary policy corridor. For simplicity, JPM focus on the corridor ceiling and floor (leaving aside the 33% and 66% confidence intervals, which have proved of scarce information value in prior quarters). As expected, the CBC revised the corridor higher, with the ceiling reaching a max of 10.5% by 4Q22 and 7.0% by Dec 23.
  • After the revisions, JPM’s headline and core inflation forecasts do not deviate much from the CBC base case for the coming three quarters. However, they do entertain higher core and thus headline inflation for 2H23, which is predicated on a suboptimal structural fiscal stance (3% structural fiscal deficit in an economy running above its potential) as well as the likely impact on key relative prices stemming from some of the reforms to be implemented by the Boric administration in the coming months.
  • JPMorgan thus adjust the terminal rate to 10.25% (+50bp in July, +50bp in September, and a final +25bp in October). They also pencil in the policy rate at 7.5% by December 2023, so for the real ex-ante rate to converge to 1.5%, a level JPM deem as consistent with the 4% of GDP fiscal expansion entertained by the administration in the coming years.

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