Chilean, Peruvian Central Banks To Refrain From Hiking Further In December

• Fitch Solutions will closely monitor the decisions of the monetary policy committees of the Banco Central de Chile (BCC) and Banco Central de Reserva del Perú (BCRP). Both central banks are expected to refrain from hiking beyond their current rates of 11.25% and 7.25%, respectively, as headline inflation moderates and inflation expectations fall.
• However, Chile is the only market in the region where core inflation has also notably eased, from 11.1% y-o-y in September to 10.8% in October, underscoring Fitch’s view that the 1,075 basis points (bps) worth of hikes the BCC has enacted since July 2021 are beginning to temper price pressures.
• In addition, Fitch estimates a softening in the growth outlook for Chile with a contraction of 0.8% estimated in 2023 – reinforcing the view that the BCC will opt not to hike further, to prevent a deeper decline in activity.
• For Peru, Fitch expects that the BCRP will hold rates at 7.25% at its December 7 meeting, a twenty-one-year high. Notably, after hiking by 700bps since August 2021, one-year forward Inflation expectations have continued to tick down, reaching 4.8% in October.
• Consequently, as inflation expectations fall nearer to the BCRP's 1.0%-3.0% inflation target, Fitch expects the BCRP will refrain from hiking further and hold its interest rate at 7.25% through H1 2023.

(Source: Fitch Solutions