Fynsa
During the week, the Central Bank published the minutes of the June Monetary Policy Meeting, in which, as we recall, it raised the TPM by 75 basis points, bringing it to 9.0%. The following day, the IPoM, so much of the strategy and scenarios considered at that meeting are already known, but it was still interesting to learn about the more tactical aspects of the decision.
In this vein, beyond macroeconomic analysis macroeconomic , emphasis was placed on something we discussed in last week's column: the role of the Central Bank's credibility and reputation, not only to control current inflation, but also to avoid modifying structural conditions, mainly microeconomic ones, that allow future inflation to be kept under control future inflation. Consistent with this, it openly communicates that the current increases are a response to supply shocks, to which there is typically no reaction, but which would be more persistent than usual, affecting inflationary inertia. Our impression is that these moves are intended primarily to affect expectations.
Additionally, and avoiding the surprises of the two previous meetings (one below and one above the market), the Council has chosen not to surprise market participants, which is quite informative regarding the cycle of future increases. Taking into account that the other option was to increase by 100 bp, which was rejected due to the need to move to a neutral bias that could be counterproductive, it seems to us that there would be a 50 bp increase and then a pause. Of course, there is always the option of moving within the margin, but in terms of magnitude, the MPR would reach around 9.5% (this being our baseline scenario) and would only be adjusted in the face of compelling evidence that the persistence of supply shocks is dissipating. In any case, we believe it is important to note that, while this could mean lowering it a little later than the activity data would suggest, it could also mean lowering it very aggressively when the time comes.
One question we have been asked lately is whether the depreciation of our currency might require further TPM adjustments the TPM rates mentioned so far. Although nothing can be ruled out, I think this is unlikely for two reasons: the first is that a significant part (not all, of course) of the peso's depreciation has been caused by the strength of the global dollar. Chile's current floating exchange rate regime reserves the right to intervene in the market when there are obvious imbalances between the exchange rate and what the fundamentals suggest, which, according to the vice president of the Council, is not the case, or at least not to an extent that, in his assessment, would justify intervention. And, secondly, exactly that: in the event of a significant imbalance, or a problem with flows or liquidity in the dollar market, the Central Bank would prefer to intervene rather than try to defend the currency with monetary policy. If you ask me, the peso seems oversold and current levels should not be permanent. But I'm not ruling anything out.
For now, then, we must wait for the end of a cycle. Of increases, of course.
