Since May 15 the peso weakened 7.2% to 635.
According to RBC Capital Markets, "This is close to our 630 June-end forecast. We still believe USD/CLP will break through recent highs to reach 650 by September."
Headline inflation is well above the key reference rate, at 4% and 3% respectively. Sentiment deterioration is likely the main culprit for the latest CLP deprecation.
Meanwhile, consumer sentiment has not been this weak since the global financial crisis. This is most likely backed by a significant deterioration in the support for President Bachelet's policies.
The Socialist Party won the elections in March 2014. Since then the 'no support' in pools declined from 20% to 66%. The job market remains relatively stable, but persisting inflation and low visibility regarding policy stance is keeping business investment clogged. This has been compounded by the implication of relatives to the President on corruption allegations as well as cabinet members. A government reshuffle adopted back in May may only stabilize the macro outlook next year, adds RBC Capital Markets.
