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SocGen Expect A Higher-Than-Market Rates Trajectory In 2023

CHILE
  • Inflation is easing at a painfully slow pace, even while the currency is appreciating and the economy slowing. The BCCh will likely begin its easing cycle (SocGen currently expect it in 2Q23 with some upside risks) when it sees real rates high enough to put pressure on demand.
  • The year-ahead inflation expectations have declined more substantially in the past five months than actual inflation, whereas the two-year-ahead expectations remain above the BCCh’s target. The currency has appreciated substantially in the past three months and is now flat y/y. The economy is weakening at a sustained pace although growth continues to outperform expectations. Additional fiscal support could further delay the demand cooling necessary to bring down inflation.
  • Given the context described above, the timing of the BCCh’s first rate cut depends on how comfortable the bank is with the level of real interest rate it deems necessary to continue putting pressure on inflation.
  • The market-implied policy rate sees some rate cuts within the next three months. Nevertheless, considering the December inflation data, SocGen find it hard to see the BCCh making its move so soon.
  • Depending on the upcoming growth and inflation numbers, SG see a high chance of the easing cycle beginning in 2Q23 (with some upside risk in terms of the timing being pushed to 3Q). They currently expect a higher-than-market rates trajectory in 2023, with our year-end rate forecast at 8.75% vs consensus of 7.25%.
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