When the music's over
The Central Bank took a significant step in January, by reducing the Monetary Policy Rate (TPM) by 100bp and adjusting its baseline scenario to a more accelerated convergence towards the neutral level. The new timeline for the TPM's convergence to its neutral level is set for the second half of 2024. It is worth recalling that the last Monetary Policy Report (IPOM) projected that the policy rate would exceed 5% by December 2024, which is 100bp higher than the current estimate. The change in the policy rate scenario is due to the expectation of earlier convergence of inflation to the 3% target.
The exchange rate has gained relevance in monetary policy decisions. Since the last Board meeting, on January 31st, the CLP has depreciated by about 10%, with a peak of 12% on February 26th. According to our models, out of the 10% depreciation, about 2.5% can be explained by the global appreciation of the dollar and (at most) 1% by the compression of interest rate differentials between Chile and global markets. The remaining 6.5% (at least) is purely idiosyncratic.
The National Institute of Statistics (INE) on February 8th released the first Consumer Price Index (CPI) using the 2023 basket, corresponding to January 2024. Inflation under the 2023 basket was lower during the recent period compared to the official figures using the 2018 basket. Despite the expectation of increased stability in the CPI due to the decreased weight of highly volatile and highly seasonal products, this was not evident in January's reading.
The IMACEC saw a significant increase in January, after adjusting for seasonality. The seasonally-adjusted series reached its highest level since March 2022, with a monthly variation of 1.7%. Does this mean that economic activity has turned the corner? More information is required in order to draw definitive conclusions. In January, the IMACEC showed a smaller-than-usual reversal of the seasonal increase typically seen in December. This correction may continue into February, although it is also plausible that we are witnessing a normalization after the strong adjustment of 2023. This pattern of low seasonal reversal was observed across sectors.
An increase in exports was the most striking result in January international trade data. For the first time since April 2023, the 12-month variation in the value of exports was positive, largely due to record-high cherry exports. Meanwhile, imports saw their first positive y/y variation since September 2022, at 2.3%. There was continued acceleration in consumption, capital and intermediate goods imports.
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