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Scotiabank: BCCh To Raise MPR By 125 Bps

CHILE
  • Chile’s inflation of 0.5% m/m in November did not surprise Scotia, but it slightly exceeded market prices (forwards 0.44%), explained by non-volatile products and more strongly evidencing the depreciation of the Chilean peso and its second-hand effects.
  • The central bank has no alternative but to continue signaling the normalization of monetary policy and prepare for a complex scenario for long-term inflationary expectations.
  • The de-anchoring of inflation expectations 24 months ahead has been accentuated, with a survey median that has risen from 3.3% to 3.5% in the last month. For now, only expectations 35 months ahead remain anchored at 3%, which could be challenged if Mr. Gabriel Boric (left) is elected president.
  • All in all, inflation remains above historical records and the exchange rate has continued to depreciate, incubating additional pressures on costs. The labour market remains dynamic while credit has begun to flow again. Private consumption has exceeded the expectations of the last Monetary Policy Report and the central bank will have to adjust up its GDP growth projection for 2021 from the range 10.5–11.5% to a point estimate between 11.5% and 12%.
  • Scotiabank expect the CB to hike the MPR by 125 bps, evaluating alternatives between 100 bps and 150 bps.
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