Fynsa
We have had important news recently regarding global and local monetary policy. First, the Federal Reserve decided to maintain its benchmark rate, which was expected by the market, the Federal Reserve decided to maintain its benchmark rate, which was expected by the market, but it also stated that there is still room for an additional hike between now and the end of the year. This could materialize either at the early November meeting or in mid-December. In any case, this is not much different from what had been previously proposed, but it is starting to become more likely given the latest figures for the US economy.
Where there were changes was in the outlook for 2024. The market was no longer so interested in the maximum level that the Fed Fund would reach during 2023 and began to look more closely at how long rates would remain high or, in other words, when a normalization cycle might eventually begin and, if so, how fast, when a normalization cycle might eventually begin and, if so, how fast. In this regard, there were indeed developments, which were interpreted as "hawkish". In its expected release of projections, the median expectation of advisors increased by 50 basis points (from 4.6% to 5.1%), realizing the same increase for 2025 (from 3.4% to 3.9%). For 2026, meanwhile, they placed their estimate at 2.9%, which would still be higher than the neutral level of 2.5%. In short, in view of the resilience of the US economy, higher rates for longer.
Locally, the news is somewhat dissimilar. The Central Bank of Chile has already started the monetary policy normalization cycle, which reached historically contractionary levels after the inflationary spiral evidenced during 2021 and 2022. This was ratified with an initial cut of 100 basis points (from the maximum of 11.25% to 10.25%) and, most recently, with an additional 75 basis points. In the minutes published for this last meeting, it became evident that, although local macro conditions had not changed, the international scenario did present novelties, especially in financial conditions.
Thus, combining both elements, we believe that, although 100 basis points cuts are still a possibility and may be more consistent with the evolution of the local macro scenario, the need not to unnecessarily pressure local financial conditions and, especially, the exchange rate, will cause that, as far as possible, the following cuts in the TPM remain in the more conservative range of the corridor presented in the last IPoM. Two cuts of 75 basis points each are consistent with a rate ending the year at 8.00%, as expressed in the aforementioned report and in line with our macro scenario.
