Fynsa
The Central Bank adjusted its growth and inflation projections in the June IPoM, but the main change was something else: a more balanced assessment of risks that leaves room for a neutral monetary stance.
Unfortunately, the work done by the Central Bank on the impact of the rapid and significant increase in the minimum wage has become politicized, turning into a dichotomous debate that omits the motivation, methodology and conclusions of the study itself.
Between the closing of the June IPoM statistics and its publication, relevant geopolitical events occurred that could alter part of its assumptions. Market reaction and global uncertainty seem to reinforce an already complex context. Even so, the report remains valid.
The April CPI surprised by coming in below expectations, reinforcing the trend of inflation moderation. Convergence towards the target seems to be progressing, with no significant pressures on the near horizon.
Monetary policy remains unchanged in a global environment marked by trade tensions. The Central Bank prioritizes prudence while domestic activity and inflation continue to show no clear signs.
If we believe that the Central Bank will do everything necessary to achieve its goal, then market prices would not be consistent.
The fact that the risks have not materialized does not mean that they may not do so, but at a later date. External pressures and the weakness of the peso could reactivate inflation in 2025.
Based on historical averages, the economy could normalize, but political discussions and lack of market dynamism complicate the outlook.
2025 is projected to be a year of moderate growth in Chile, with good returns for fixed income and equity investors.
We project a further 25bp cut at the December meeting, which would end 2024 at 5.0%. As we estimate the neutral rate at 4.25%, three more cuts should occur during the first half of next year, with room for some pauses only if needed due to the economic situation.
