Chile Rate Hike Predicted

Chile looks set to raise rates Thursday to stem inflation, but analysts are divided on the magnitude of the increase. Merrill Lynch says it will add 25bp to 8.50% at the Thursday meeting, while Goldman Sachs expects 25bp-50bp. “On one hand, actual and expected inflation remain pressured, and CLP weakness adds to the risk of expectation and wage contamination. On the other, the global backdrop has deteriorated markedly since the last meeting, raising the prospect that deflationary forces may shift the inflation outlook significantly for an open economy such as Chile’s,” says Merrill. The shop adds that its models point to the need for a 9.25% level, but expects Chile to get there gradually. “In our assessment, the odds of a 50bp versus a 25bp hike are pretty even,” says Goldman. “Another 50bp hike, rather than a 25bp, would certainly boost the central bank credibility as it would unequivocally reinforce the central bank commitment to bring inflation back in line with the 3.0% target over the usual horizon of monetary policy (18-24 months ahead),” it adds.