Hope of Deliverance

CHILE - Report 29 Dec 2017 by Igal Magendzo

Markets celebrated Sebastian Piñera’s second-round election victory. The peso appreciated and the stock market jumped. We will have to wait a little bit to determine whether this optimism translates into improved business confidence and a pickup in investment. As of November, business confidence remained subdued. Moreover, the recent improvement in confidence has been based mostly on hopes for future perspectives, not on current conditions.

In October, the Monthly Index of Economic Activity scored the largest 12-month variation since August 2016. But, it must be taken with a grain of salt. Activity was favored both by additional working days and mining production. The latest data on retail sales is coherent with the ongoing stability in consumption. The latest data point to a stabilization of the labor market.

In November, monthly inflation stood at 0.1%, slightly above market expectations. The 12-month variation of CPI remained at 1.9%. Once again, “all inclusive” was the product with the highest incidence.

In line with expectations, in the December Monetary Policy Meeting, the Central Bank kept the Monetary Policy Rate unchanged at 2.5%. It will remain constant at 2.5% for an extended period of time, unless inflation surprises us significantly.

A few days before the presidential elections the on-shore interest rate on US dollar operations showed a sharp increase and the forward points fell abruptly. The reasons were not clear, but there are a few hypotheses. In this context, the Central Bank announced on Friday, 15 December it was buying 30-day US dollar currency swaps for up to USD 500 million in daily auctions, for four weeks and accepting treasury and Central Bank bonds as collateral. Elections were held two days later, and liquidity started to normalize. Some argued that the Central Bank should have waited for the elections before making the move because it could have been interpreted as a warning that Alejandro Guillier was a threat to the normal functioning of the dollar market. We believe that this is a far-fetched interpretation.

Now read on...

Register to sample a report

Register
Sign-in
Forgot your password?
Copyright 2024 GlobalSource Partners. All rights reserved. This report is prepared for GlobalSource Partners’ clients and may not be redistributed, reproduced, stored in a retrieval system, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of GlobalSource Partners. This report is distributed simultaneously to our website and other portals used by GlobalSource Partners. The information herein was obtained from various sources and is believed to be reliable but GlobalSource Partners does not warrant its completeness or accuracy. Neither GlobalSource Partners nor any Country Analyst, officer or employee accepts any liability whatsoever for any direct, indirect or consequential damages or losses rising from any use of this report or its contents.