Rates Hiked Above Market Forecasts
In stark contrast to the mammoth easing programs which remain in place across the majority of the G10, the Chilean central bank actioned its largest rate hike in 20 years overnight. The central bank, led by governor Mario Marcel, hiked rates by 0.75% to 1.5%. While a rate hike had been well signalled, the move was well above market forecasts of a 0.50% hike and has sent the Chilean Peso soaring against the Dollar, marking a reversal in the YTD rally which had seen USDCLP rising more than 15% from lows around 700 to highs just ahead of the 800 mark.
Attempting to Control Inflation
In the statement issued alongside the decision, the central bank cited “an accumulation of macroeconomic imbalances that, among other consequences, could lead to a more persistent increase in inflation,” as its central reasoning for the rate hike. The statement noted that “The board decided to intensify the withdrawal of monetary stimulus by increasing the policy rate by 75 basis points” after considering these factors.
COVID Recovery & Commodities Rally
The central bank is clearly hoping that this latest policy move will help cool the current overheating in the Chilean economy. The country remains one of the best performing in Latin America with current consensus growth forecasts for the year ahead sitting around the 10% level. However, the rise in commodity prices, as well as the firm rebound in consumer demand, is seeing inflation running well above target and for a longer period than the central bank initially projected, threatening spiralling inflation if not brought under control.
Inflation at 5-Year Highs
The Santiago base central bank noted that the ongoing global economic recovery was fuelling the rise in inflation there. With COVID vaccination optimism driving commodities prices higher once again, the country (which is the largest global copper producer) noted that inflation was becoming a key issue. The rise in in energy prices, particularly as transportation costs, was also fuelling the uptick in inflation. Last month, inflation peaked at 4.5%, marking its higher point since Q1 2016, after rising 0.8% on the month, well above forecasts for a 0.3% rise.
Technical Views
USDCLP
The sell off has seen price pulling back below the 776.91 level after failing at a test of the channel top. With indicators turned lower, while below this level, there is room for a deeper correction towards the 758.42 level, with the rising channel low coming in just above. A break below there would then put 745.47 in view as deeper support.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.