Chilean Peso: Could dovish repricing emerge as central bank expected to stay on hold? – BBH

The Chilean Peso (CLP) remains vulnerable to dovish repricing and pressure from a weaker copper/oil ratio, according to Brown Brothers Harriman’s (BBH) Elias Haddad. He expects Chile’s central bank to leave its policy rate unchanged at 4.50% for a sixth meeting. In his view, the future rate hikes priced in by markets are too aggressive, given subdued domestic activity and a policy rate already close to the upper end of the neutral range.

Could dovish repricing weigh on the Chilean Peso?

"Chile’s central bank is widely expected to keep the policy rate on hold at 4.50% for a sixth straight meeting (9:00pm London, 5:00pm New York). The swaps curve implies 50bps of hikes to 5.00% in the next twelve months and 100bps of cumulative tightening over the next two years."

"We think this is too aggressive given weak domestic economic activity and the policy rate already near the upper end of the bank’s 3.75-4.75% neutral range. That leaves CLP vulnerable to a dovish repricing."

"The decline in the copper/oil ratio also weighs on CLP as higher energy import costs dilute the benefit of firm copper prices."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Learn more.)