Chile - BCCh preparing for rate hike much sooner than expected

The Central Bank of Chile (BCCh) kept its policy rate unchanged at 3.00% at its September board meeting but gave a clear hint that a rate lift-off may come sooner than we have been expecting. Given the strong pass-through from currency depreciation and the stronger-than-expected labour market, the central bank probably does not see inflation moderating to its target during the policy horizon despite significantly weaker economic growth.

"It would be prudent to wait for the conclusion of the Fed meeting before projecting the BCCh's stance, but considering our US economists' call for Fed lift-off tomorrow, we see a rising probability that the BCCh will begin tightening as soon as October. This would mean that the focus of monetary policy would return to managing prices, leaving the responsibility for ensuring a growth recovery to fiscal policy",says Societe Generale.