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JPMorgan Recognize Very Volatile And Tighter Global Financial Conditions

CHILE
  • The CBC Board meets this week, to decide the realignment pace of the real ex-ante policy rate. The question is whether the Board decides to maintain a stable easing pace to realign the real ex-ante policy rate or decelerate the pace to prevent any potential spillover of the exchange rate weakness to inflation expectations.
  • In JPMorgan’s view, the September inflation data, though printing above expectations, would side with the idea of maintaining the easing pace, trimming the policy rate by another 75bp, to 8.75%. The performance of core CPI, particularly core goods, shows very limited FX pass-through, and activity has proved very poor.
  • On the other side, the Board has proved very sensitive to the exchange rate weakness, despite the limited transmission of the exchange rate to final prices observed so far.
  • In all, JPM recognize the very volatile and tighter global financial conditions are to play a key role in the decision. Yet, JPM believe that fundamentally the option of trimming the policy rate by 75bp appears to be the most likely decision, giving the current real ex-ante rate level and the frail growth momentum. In their view, the dominant play is to cut 75bp and signal a deceleration in the easing pace ahead.

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