Sell Side Analysis Following Chile Quarterly Monetary Policy Report

Goldman Sachs:

• The Quarterly Inflation Report (IPoM) is a clear-eyed and hawkish document and the policy implications obvious and direct.
• Higher than previously expected consumption-led growth, significantly near-term above target socially-regressive headline and core inflation and rising FX pass-through from a weaker CLP requires at least full withdrawal of the current level of monetary accommodation, possibly more than that depending on the evolution of some risk factors (e.g., delayed fiscal consolidation and/or further withdrawals of pension savings).
• For the MPC, failure to act swiftly could be costly down the road and spawn welfare-destroying macro imbalances.
• At this juncture GS expect the policy rate to reach 2.75% by end-2021, and to rise further to 4.00%-4.25% by end-2022, i.e., modestly above neutral.

JPMorgan:

• The stronger momentum in household consumption compounded with additional fiscal accommodation prompted the CBC to revise 2021 GDP higher to 10.5-11.5%.
• Maintain their forecast for two additional hikes of 50bp each for this last quarter of the year, so for the policy rate to end the year at 2.5%. Importantly, this level assumes no additional fiscal accommodation deployed before the year end, and no 4th pension fund withdrawal.
• For 2022, JPM expect the policy rate to converge to 4.0% by June, and they add an additional 25bp in 2H22, as they expect the structural fiscal consolidation to prove less aggressive than what the government entertains, so for the policy rate to converge to 4.25% by December.