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UBS Strategy on CLP Ahead Of BCCH Meeting

CHILE
  • With USDCLP now at their 800.00 post-election target, UBS prefer not to chase the USDCLP lower from here, instead they see value in CLP versus the COP. The CLP remains ~9% cheap in their fair value model, but the 6% year-to-date rally arguably puts some constraints around CLP’s short-term upside potential.
  • Higher commodity prices and a hawkish Central Bank have also fueled the rally in their view, and with the peak on inflation still ahead of us, UBS think there is room for the Central Bank to surprise to the hawkish side.
  • The departure of Marcel from the CB will arguably intensify the need for the CB to show that is ready to act if conditions so merit, and with inflation currently at multiyear highs and two-year inflation expectations at 3.7% (vs 3% target, the highest dislocation since the return of the democracy in the early 90s), should be enough to keep the board hawkish in the Jan meeting.
  • That said, the reaction of the rates market to Marcel's nomination was more positive, however with inflation peaking at ~8% by June (versus 7.1% today), UBS would be cautious to receiving rates at this point, until we get better visibility around the inflation outlook or 2yr inflation expectations stabilize (up from 3.5% in Dec to 3.7% in Jan).
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