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SocGen Say FX Move Failed To Significantly Improve Inflation Expectations

CHILE
  • BCCh is likely to hike by 75bp to 10.50% on 6 September, approaching the end of the tightening cycle. A combination of high current inflation and elevated inflation expectations, coupled with wide current account deficit, despite expected sharp economic deceleration ahead, will likely make BCCh hike again in September. However, it might turn more data dependent/neutral thereafter.
  • At the 13 July meeting, the central bank hiked rates by 75bp to 9.75% unanimously and expressed a need to continue with the tightening cycle. The board expressed concern over large macroeconomic imbalances and the inflationary impact of the sharp CLP weakness observed before the FX intervention programme, which started on 14 July (USD25bn from 18 July to 30 September).
  • The FX intervention has reverted most of the sharp CLP weakness; however, it has failed to significantly improve inflation expectations, which are still far away from the 3% target, at 7.9% for the 12 months (9% previously) and 5.25% for the 24 months (4.75% before).
  • The market expects BCCh to hike 125bp to 11.0% in the next three months and cut rates to 9.5% by 3Q’23 and 7% by 3Q’24.
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