Fynsa
Following the latest CPI data in Chile, the market has become quite optimistic about the end of the inflationary cycle in the country. This has been evident both in the spreads between assets traded in UF and pesos, and in the market's expectations for future MPRs. Thus, we have seen significant declines in nominal rates at various maturities, along with projections that anticipate an MPR cut as early as December. However, we believe it is still too early to claim victory.
Firstly, although we already mentioned the positive nature of October's CPI data, it is only one piece of data, and a more in-depth look shows that there are still effects that can be linked to greater persistence. Furthermore, given how close we are to months that are seasonally highly indexed to past inflation (January and December), we cannot rule out the possibility that this mood could dissipate as quickly as it developed. What is more, many risk factors have not dissipated and, recently, have shown us that they are more present than ever, such as exchange rate volatility and the war in Europe.
Furthermore, taking the above into account, we do not believe that, without additional information, the Central Bank will decide to cut the MPR in December. In fact, recent statements by its president, Rosanna Costa, have been along these lines. Under normal conditions, the Council waited to have more evidence pointing to lower inflation going forward, which we believe is even more necessary in a completely abnormal context such as the current one. The risk of reducing the MPR and then having to reverse it due to a misreading of the information is much higher than leaving it at 11.25% for longer than appropriate and then having to begin a more aggressive cycle of cuts.
We get the feeling, and this is not necessarily unique to our country, that the market is eager to see a shift in monetary policy that will lead to more favorable conditions for financial assets. This is particularly true in a year in which returns have been rather limited as a result of more restrictive financial conditions.However, let us not forget that what we want is not necessarily what is, which may well be true in this case. Mind you, we are not saying that the probability of a change in the inflation trajectory is zero, not at all. What we are saying is that, based on the information we have so far, it seems to us to be a very premature call to make.
