Emerging Markets | FX | Monetary Policy & Inflation
Summary
• Sunday’s presidential run-off should clarify Chile’s future economic path and remove some uncertainty weighing on the peso.
• But with the earlier pension withdrawal triggering a very strong rebound in domestic growth and imports, CLP faces ongoing headwinds from a wider C/A deficit.
• CLP could make up some of the recent divergence with copper, while a hawkish central bank should also support CLP.
Market Implications
• Should the right-wing candidate win on Sunday, we expect a relief rally in the peso and stocks.
• But a material turnaround in CLP depends on i) continued political certainty, including on the new constitution, ii) stable copper prices, iii) an end to pension withdrawal, iv) an improved financing mix on the capital account, and v) ongoing central bank commitment to restrictive monetary policy.
Summary
• Sunday’s presidential run-off should clarify Chile’s future economic path and remove some uncertainty weighing on the peso.
• But with the earlier pension withdrawal triggering a very strong rebound in domestic growth and imports, CLP faces ongoing headwinds from a wider C/A deficit.
• CLP could make up some of the recent divergence with copper, while a hawkish central bank should also support CLP.
Market Implications
• Should the right-wing candidate win on Sunday, we expect a relief rally in the peso and stocks.
• But a material turnaround in CLP depends on i) continued political certainty, including on the new constitution, ii) stable copper prices, iii) an end to pension withdrawal, iv) an improved financing mix on the capital account, and v) ongoing central bank commitment to restrictive monetary policy.
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