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SocGen: High Possibility Of Interest Rates Peaking At 9.5% In 3Q22

CHILE
  • At its last policy meeting, the central bank forward guidance suggested it was prepared to reduce the pace of tightening in the next meeting, and accordingly SocGen expect BCCh to raise the overnight rate by 100bp to 8.0% in May.
  • With headline and core inflation at 9.4% yoy and 7.6% respectively in March, and the near- and medium-term inflation expectations deteriorating further, the possibility remains substantial that the central bank maintains its recent pace of tightening in May (i.e., raising rates by 150bp) followed by moderation in the next meeting.
  • Inflation is likely to stay around current levels in the coming month while core inflation will rise further before moderating in 2H22 onwards. Consumption demand and the economy have begun to slow, as the impact of withdrawals from pension funds is fading and the high inflation affects demand.
  • However, with the inflation outlook nowhere close to BCCh’s target (3.0%, +/- 1.0pp), growth will not enter the central bank’s monetary policy calculations anytime soon.
  • SocGen see a substantial possibility of rate hikes being implemented in 3Q22 (with some upside risk of the tightening cycle getting extended into 4Q22). The overnight rate is more likely to peak around 9.5% (in 3Q22) vs their earlier forecast of 8.5%.
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