LarrainVial Expect USDCLP Appreciate to 850/USD by Year-End

From the Bloomberg article: Recent short-term stability is explained by strong copper prices and carry trade, although CLP should depreciate to 850/USD by the end of this year, according to LarrainVial economists.

• Local politics could trigger episodes of high volatility but with short-term effect, with the main risk the evolution of drafting of new Constitution, which still hasn’t shown signs of moderation.
• Boric government’s recovery plan will have limited effects on economic imbalances.
• Fifth pension fund withdrawal likely to be rejected. However, if it passes this would open door to the withdrawal of 100% of funds, a scenario that isn’t priced into LarrainVial estimates
• In the short term, monetary policy rate seen following trend that is closer to the upper range of the BCCh corridor due to higher inflation than the monetary authority expects, the economists said:
  • The yield curve would be inverted in this context.
  • The MPR should reach 8.5% and the yield on the BTP-2030 would rise to 7%.
  • After peaking at these levels, the slope of the yield curve should return to be positive in 2023 due to global recession that would hit domestic demand and a drop in inflation, triggering MPR cuts next year, amid reduction of Chile’s twin deficits.