The recent stability of the Chilean peso in the short term is explained by the strong prices of copper and carry tradealthough the currency should depreciate to $850 per dollar at the end of this year, according to economists from LarrainVial.
Local politics could trigger episodes of high volatility but with a short-term effect and the main risk is the evolution of the wording of the new Constitutionwhich has not yet shown signs of moderation, Francisco de la Cerda, Javier Salinas and Leonardo Suárez wrote in a note.
As for the recovery plan of the government of President Gabriel Boricestimate that this will have limited effects on economic imbalances and the fiscal situation, since it will be financed mainly with reallocations and freely available funds left by the previous administration.
A potential fifth withdrawal from pension funds is likely to be rejected. However, if this is approved, it would open the door to the withdrawal of 100% of the funds, a scenario that is not discounted in LarrainVial’s estimates.
In the short term, meanwhile, the monetary policy rate would follow a trend closer to the upper range of the Central Bank’s corridor due to higher-than-expected inflation by the monetary authority, the economists said. The yield curve would invert in this context.
For its part, the reference rate should reach 8.5% and the profitability of the BTP-2030 would rise to 7%. After reaching these levels, the slope of the yield curve should turn positive again in 2023 due to the global recession that would hit domestic demand and a drop in inflation, which would cause cuts in the policy rate next year, amid the reduction of Chile’s twin deficits.