Fynsa
What a week. Starting with the result of the plebiscite and a victory of the "Rejection" option, which, although it could have been incorporated, by no means by the margin of more than 20 points between the alternatives. Then, an expected cabinet reshuffle by President Boric, albeit somewhat bumpy due to last minute changes. Then, a Monetary Policy Report that puts the ball on the floor: it speaks strongly about the inflationary problem we face, increases the magnitude of the recession we would experience next year, and openly states that fundamental changes may be taking place in the economy that will affect price stability somewhat more permanently.
As if that were not enough, the world mourns the death of Elizabeth IIwho passed away at the age of 96, after being the sovereign of the United Kingdom and the Commonwealth for more than seventy years. The Queen is dead, long live the King.
In the midst of all this, our Central Bank met for one of the most talked about meetings in recent times. Not only because of the surprise decision of the Board, which increased the TPM 100 bp, above what the market and we estimated (75 bp), but also because there were two minority votes (Garcia: 125 bp; Griffith Jones: 75 bp).. Something that, at least I (and my memory may be playing tricks on me) do not remember having seen. Are minority votes common? No. And not because there are no differences among the directors, which there are, but because all these are tried to be resolved before the communiqué is actually decided and published. Therefore, for there to have been two, the difference must have been higher than usual.
Let's take it one step at a time. First, the fundamentals discussed exhibit at least a more volatile external scenario, tighter financial conditions and a more appreciated global dollar. and a more appreciated global dollar. Locally, activity has lost dynamism at a faster rate at the margin, the labor market has worsened and confidence is in pessimistic territory. Still, inflation is above 13% YoY, expected to rise to levels close to 14% YoY, while underlying indicators have also risen. Yet, the rate continues to rise. Volcker doctrine?
Secondly, as expected, there is no explicit reference to the constituent process or its outcome. This seems reasonable to us, since, regardless of what happened on Sunday, it would be difficult in two days (or less) to come up with something sufficiently important to immediately modify the macro framework.
Thirdly, bias. And what a bias! Little to the interpretation by saying that "the rate is located around the maximum level considered by the central scenario of the September IPoM"...". I must admit that, at first, I thought it was a mistake, that it referred to the corridor presented in July. But no. And we are back to the beginning: the Central Bank, on this occasion, decided to raise the rate to the maximum level of this cycle, which eventually generated dissent among the advisors.. One voted for 11%, others for 10.75% and, finally, another for 10.50%. Basis points plus, basis points minus, that's as far as we got (which also takes the drama out of the split decision). Of course, there is a risk scenario, in which inflation does not let up and eventually it may be necessary to generate more hikes. But in the central scenario, this should not happen. The question, now, is how long will the TPM remain at 10.75%. In our macro scenario, at least until 1Q23.
