The Chilean market expects interest rates to rise twice, to 10% in September

Financial Gazette – Santiago

The consensus pointed to the fact that at its meeting, which ends tomorrow central bank It will raise the Monetary Policy Rate (MPR) for the last time in this cycle, today at 9%. But high inflation, new government aid and exchange rate appreciation have changed this scenario, and now the market estimates that this year the issuing institute will implement two additional rate adjustments.

The economic outlook survey for July published by the board of directors this Tuesday indicates that at its meeting that ends tomorrow, the central board will raise the rate by 50 basis points, and will make a similar adjustment at the subsequent meeting, in September, to remain at 10%.

At the end of this year, the grassroots movement will remain at this level. Within eleven months, the board could have lowered the rate to 8%, and in another 17 months it would be 6.5%, according to the survey sent to economists on Tuesday of last week, whose responses were received yesterday.

This, amid the consumer price index (CPI) that is not giving up: this month the rise in the index will be 1% according to the economists surveyed, exceeding one-tenth of the figure for June, published last week, and in August, the monthly rise is expected Moderate to 0.8%.

It will close this year with an inflation rate of 11%, closer to the adjustments the market has made in recent weeks, but leave behind the forecasts proposed by the institute issued in its latest monetary policy report – and the EES itself – and noted that the CPI is close to 10% for December. At the end of 2023, inflation could have fallen, but only to 5.1%.

The exercise estimates that in 11 months the annual variance of the CPI will be 7.1%, and that in another 23 months it will be 4%, which is still above the two-year horizon of the central bank. According to estimates by analysts consulted in the eastern eastern US, in just 35 months, inflation will return to its 3% target.

The prospects for the exchange rate are also on the rise: in the midst of new records for the currency – which rose today to an unprecedented level of $ 1010, despite yesterday’s verbal intervention by the issuing institute – the group expects that in the next two months the dollar at $ 930, and in Eleven months it would have fallen to $877.5, and in 23 months to $850.. What about growth? After the surprise economic activity in May – where it grew 6.4% – the moderation path will continue to deepen in June, as the market estimates that the rise in the monthly index of economic activity (Imacec) would have slowed to 4.3% last month.

In the third quarter, GDP will only be able to grow by 0.2%, and for this year as a whole, the expansion in the economy will be 1.8%, a tenth higher than it surveyed last month. For 2023, the estimated growth remained at 0%, and in 2024 it remained at 2%. Household consumption is expected to grow by 1.8% this year, half a point higher than estimated in the previous survey, and next year the index will see a 0.9% decline.

For gross fixed capital formation, the picture is more pessimistic than in last month’s exercise: at the end of this year, the index measuring investment will contract by 3%, and in 2023 by 2%, the decline will be deeper than 2.5% and 1% which were expected in June, but are less significant than the declines of 4.8% and 2.2% projected in the report.