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JPMorgan Say Decision To End Cycle Looks Somewhat Risky

CHILE
  • Despite forecasting the 50BP hike, what did not align with JPM’s base case scenario is the decision to message the end the tightening cycle.
  • Regardless of the inflation performance, the Board decided to jump on the bandwagon of other EM CBs in allocating a higher weight to the (expected) output gap, putting to the fore growth dynamics against the backdrop of concerns on global global growth prospects and domestic demand contraction trends.
  • The recent macro information looks consistent with the decision to hike 50bp the policy rate, yet the decision to close the door to additional hikes looks somewhat risky, in particular when taking into account the exchange rate performance and the aforementioned behavior of inflation expectations.
  • To somewhat compensate for the end of cycle call, the Board decided to signal that the policy rate will remain stable “ for as long as necessary to ensure the convergence of inflation to the target over the two-year policy horizon”. The emphasis on the high risks in the statement, particularly short-term, adds some confusion and seems not to align with the decision to call the end of the cycle.
  • Regarding the revision to JPM’s base case scenario, the policy rate is expected to remain at 11.25% until 3Q22 (before end of 2Q22), and the level by December 2023 is revised higher to 8.5%.
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