The Central Bank once again raised the Monetary Policy Rate by 50 base points, taking it to 11.25%. This time, and unlike the last meeting, the decision was unanimous.
According to the governing body, the council estimates that the Monetary Policy Rate (TPM) “It has reached the maximum level of the cycle that began in July 2021 and that it will remain at this value for the time necessary to ensure the convergence of inflation to the target in the two-year policy horizon.”
However, he warns that “The risks of the macroeconomic scenario are high and their short and medium-term implications must be carefully evaluated.”
In this way, “the council will remain attentive to the development of these events and reaffirms its commitment to conducting monetary policy with flexibility, so that projected inflation is located at 3% in the policy horizon.
This is the highest level of the governing rate since March 1999, when the rate, at that time in real terms, was 7.25% and inflation was 4.1%.
Although at the last meeting the BC already anticipated that the interest rate was “around the maximum level considered in the central scenario of the September Report”, this time the message was more explicit and categorical. This is how the economists interpret it, since they coincide in pointing out that there are now more elements that allow us to anticipate this maintenance scenario.
“The statement’s bias is clearly neutral by weighing inflationary risks in a balanced way with those of activity. For the BC, the process of increasing the MPR would have concluded and would maintain that level, according to the last Report, for a few months before starting a slow process of cuts”, Scotiabank maintains.
In Santander they affirm that the Central’s message “implies a strong bias of neutrality for the next meetings”. And for this reason, he adds that “we estimate that in the coming months we will begin to see a gradual but sustained decline in inflation along with an economy that continues to contract. This will give rise to the council beginning to evaluate a shift in its monetary strategy in the next Report in December”.
Felipe Alarcón, an economist at Euroamerica, says that whether or not this is the last hike “It is the million dollar question, especially after some failed attempts, where on several occasions they signaled the soon end of the cycle and in the end the persistence of inflation and activity said otherwise. Still, I think this time around it is much more likely that the bull cycle is over.”
The second message sent by the Central pointed to maintaining this value for the time necessary to ensure the convergence of inflation to the target in the two-year policy horizon. What is that necessary time? most economists interpret that the interest rate will remain at these levels until the first quarter of next year and in April 2023 the process of interest rate cuts could begin. The key here to gauge the start of the reductions is that inflation begins to ease. “The slowdown in the economy will allow inflation to gradually adjust downwards, particularly in 2023 where it would accelerate its fall and expectations would be anchored again, thus allowing the Central Bank to begin a cycle of lowering rates, which would begin in April next year. year”, comments the chief economist of Zurich Chile AGF, Ricardo Consiglio.
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Felipe Ruiz, an economist at Bci, expects that “the MPR will remain at 11.25% until at least the second quarter of 2023, in which the gradual cuts would begin as inflation expectations return to normal. If so, we expect the MPR to close 2023 at around 7.5%”. Alarcón notes that “under current conditions, the start of the rate cuts should be towards the end of the first quarter of 2023.”
In Santander they emphasize that “The cycle of downgrades could materialize at the end of January meeting or, more likely, at the beginning of April, which is held in conjunction with the March Monetary Policy Report. At that time, the Council will have enough information to evaluate a cycle of rate cuts and will have the right opportunity to explain it to the market”.
They have a different position in Scotiabank, where they expect that “the durability of the MPR at 11.25% will be until December 2022. where the need for a level adjustment compatible with activity in negative territory and slowdown in inflation would be pointed out in the December Report. The adjustment would take place in the RPM of January 2023 with a dose of not less than 100 base points”.
In their analysis of the macroeconomic scenario, the governing body highlights that, in September, total inflation reached 13.7% per year, decreasing slightly compared to the August record. Core inflation, on the other hand, increased to 11.1% annually. Likewise, it mentions that with respect to the Report, the accumulated inflation in the last two months has been higher than expected, “mainly due to the greater increase in the prices of some foods. Inflation expectations two years ahead remain above 3%”.
Regarding activity, the Central Bank maintained that in August the non-mining component of Imacec was somewhat higher than forecast in the September Report, mainly due to higher activity in some services. However, items such as commerce, industry and construction present relevant falls in their levels of activity, in line with what was anticipated.
On the expenditure side, they mention that “the indicators related to private consumption show that this has continued to decline, and those linked to investment remain weak, although with some resilience in specific sectors that have boosted imports of machinery and equipment.”
Regarding the labor market, the governing body says that “a stagnation in job creation and a decrease in vacancies” continues to be observed. and that “the annual variation of real wages continues to show negative values. The consumer and business confidence indices remain in the pessimistic zone, although they show some rebound in the most recent period”.
In the analysis of the international scene, The governing body warns about the prospects for world growth and that international financial conditions have deteriorated. “Global inflation has continued to show signs of greater persistence, central banks have continued to raise their reference rates and market expectations point to a prolonged monetary tightening in developed economies,” he points out. Likewise, he affirms that “global financial markets maintain high levels of volatility and therefore the dollar has continued to strengthen worldwide, stock markets have decreased and long-term interest rates have increased.”
It also highlights that the prices of raw materials have shown fluctuations. “In the days prior to the Meeting, the price of a barrel of oil was around US$90 and that of a pound of copper close to US$3.5″, he mentions.
In this way, the national financial market “has adapted to recent global trends.” Thus, it indicates that, compared to the previous meeting, the exchange rate depreciated around 5%, long-term interest rates rose –especially those in UF– and the IPSA registered losses. Meanwhile, bank credit continues to slow down, amid supply conditions that remain restrictive and demand that is perceived to be weak for all segments.
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