Fynsa
After 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 of assets traded in UF and pesos, as well as in the expectations of future MPRs that the market is determining. Thus, we have seen significant drops in nominal rates, at different maturities, together with projections that anticipate a cut in the TPM even as imminent as in December. However, we believe it is still too early to declare victory.
First of all, although we have already mentioned the positive aspect of the October CPI data, it is only one piece of information, and a more in-depth look shows us that there are still effects that can be linked to a greater persistence. Moreover, we cannot rule out that, given how close we are to months that are seasonally highly indexed to past inflation (January and December), this mood could unravel as quickly as it was created. Moreover, 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.
Additionally, taking into account the above, we do not believe that, without additional information, the Central Bank will decide to cut the TPM in December. In fact, recent statements by its president, Rosanna Costa, have been along these lines. Under normal conditions, the Board would wait for more background information along the lines of lower inflation going forward, which seems to us even more necessary in a completely abnormal context such as the current one. The risk of lowering the TPM and then having to reverse it due to a misreading of the information is much, much higher than leaving it at 11.25% for longer than appropriate and then having to start a more aggressive cycle of cuts.
We have the feeling, and this is not necessarily exclusive to our country, that the market is eager to see a pivot in the conduct of monetary policy, leading to more benevolent conditions for financial assets. This is particularly true in a year in which returns have been rather limited as a result of tighter financial conditions. However, letus not forget that what we want it to be is not necessarily what it is, which may be quite true this time around. Mind you, we are not saying that the probability that the inflation trajectory is changing is zero, not at all. What we are saying is that, with the information we have so far, it seems to us a very premature call to make.
