BCCh rate changes unlikely till H1 2016 in Chile

On several occasions, the central bank has confirmed the suspicion that the bank sees further easing as futile, given the view that a substantial part of the growth deterioration is probably structural (vs cyclical). 

While Q2 growth composition shows that risk to growth remains tilted towards the downside (notwithstanding the recent upticks), the increased pressure on the peso (in part due to the impending start of the Fed's tightening cycle and the policy changes in China) and the resulting rise in inflation seems to outweigh the impact of lower growth on the policy rate outlook. 

"As a result, there is an upside risk of monetary tightening beginning earlier than projected at the moment, no rate change is expected through H1 2016 followed by 50bp rate hike in H2 2016. However, the probability of upside risk materializing is low at the moment. As the growth outlook remains challenging, the labour market is expected to weaken", says Societe Generale.

This should help on the inflation front allowing the BCCh to stay accommodative.