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SocGen: BCCh Action Could Be CLP Supportive In Short-Term

CHILE
  • The smaller-than-expected rate cut by Chile’s central bank on 5 September shows that it is apprehensive about the inflation trajectory at a period of time when the economy has begun to recover and the CLP has depreciated. It doesn’t want to commit to too much easing, too soon – and before the inflation outlook has sufficiently materialised, hence the lower pace of easing. The central bank’s action could be supportive of the CLP, at least in the short term.
  • SocGen interpret the statement as meaning that if the incoming inflation numbers follow the central bank’s projections, then the BCCh will continue to ease at a pace of 75bp in the coming meetings (taking year-end MPR at 8.0%). This will likely be followed by smaller rate cuts in 2024 depending on how fast or steadily the inflation outlook is seen converging with its target. SG now project 2024 year-end MPR at 5.25% vs the consensus forecast of 4.55%.
  • Global risk appetite, led by movements in UST yields and the USD, along with China’s economic woes, are likely to continue to dominate CLP performance in the coming days. SocGen see the CLP performance being supported by the central bank actions while the local swap curve will likely move sideways albeit still with a steepening bias.
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