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Santander Estimate Year-End Rate Between 7.25% - 7.00%

CHILE
  • The downward surprise in CPI confirms that the rate cut process will begin at the July 28 meeting, with a 75bp decrease in the TPM, according to Santander. This would be in line with the Board sticking to the strategy outlined in the most recent report, which is more consistent with a cut of 75bps. The latest data should prompt sharp downward revisions to the forecasts for both activity and inflation. Given this, Santander see room for a 100bp cut in September and then another of between 100bp and 125bp in October, to close the year with a new aggressive drop that places the TPM between 7.25% and 7.5%.
  • The fall in the CPI was due to general declines in prices. Seven of the twelve divisions had a negative impact and one presented a zero incidence. The inflation data shows that a significant break in price dynamics is materializing, where the weakness of activity -with aggregate consumption heavily punished and a weak labor market-, the appreciation of the exchange rate and the fall in value for the international prices of raw materials have begun to be reflected in a notorious way in domestic prices.
  • Going forward, Santander estimate that low inflationary pressures will continue to mark the evolution of the CPI. Although the recent climate front could have had some impacts on the prices of some foods, this would be limited and transitory. For the time being, Santander have revised downward their projection for inflation at the end of the year, from 4.3% to 3.9%.
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