Latin America November 30, 2018 / 02:27 pm UTC

Central Bank of Chile to Wait Until January to Hike Again

By Priscila Robledo

We expect the Central Bank of Chile (BCCH) to hold its rate steady at 2.75% on December 4. Strong activity data and controlled inflation are allowing the Bank to continue withdrawing stimulus at a gradual pace, delaying a hike to January.

At its last meeting, the BCCH began its tightening cycle after 18 months of holding the rate steady. Initially, the board suggested December as the starting point, but stronger data in economic activity, as well as a desire for a controlled unwinding of monetary stimulus, prompted the board to start the tightening cycle in October.

After the decision, economic activity surprised to the upside and inflation stabilized close to target. Moreover, Chile’s statistical agency (INE) revised wage data upwards, finding that real wage growth, rather than being negative, had actually risen more than 1.5% in each of the last 12 months. Indeed, as we expected, wages started to accelerate in September due to the minimum wage increase. This means that the main reason for delaying rate hikes has faded.

In this context, we believe the BCCH has sufficient reasons to stick to its plan to bring monetary policy to a neutral stance by 2020. The Bank has made its preference for a gradual pace clear, and we expect a pause in the coming meeting. We expect a 25-bp hike in January 2019, with the BCCH likely to give clear reasoning when its quarterly monetary policy report, IPOM, is released on December 5.

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Analyst Certification
I, Priscila Robledo, the lead analyst certify that the views expressed herein are mine and are clear, fair and not misleading at the time of publication. They have not been influenced by any relationship, either a personal relationship of mine or a relationship of the firm, to any entity described or referred to herein nor to any client of Continuum Economics nor has any inducement been received in relation to those views. I further certify that in the preparation and publication of this report I have at all times followed all relevant Continuum Economics compliance protocols including those reasonably seeking to prevent the receipt or misuse of material non-public information.