(MENAFN- Investor Ideas) Investorideas ( ), a go-to platform for big investing ideas releases market commentary from Quasar Elizundia,Expert Research Strategist at Pepperstone.
"The recent acceleration of inflation in Chile has heightened uncertainty about the country's economic outlook. Throughout the day, and further affected by a broad strengthening of the dollar, the Chilean peso experienced a substantial depreciation of around 2%.
In October, the consumer price index rose 1% month-over-month, mainly driven by increases in housing services (+3.1%) and food and non-alcoholic beverages (+2.2%). This monthly increase significantly exceeded market expectations, placing the annual inflation rate at 4.7%, a notable rise from the 4.1% recorded in September.
This scenario somewhat challenges the recent strategy of the Central Bank of Chile, which has been cutting interest rates with the aim of stimulating the Chilean economy. Although this normalization policy was necessary in a context of relatively lower inflation levels compared to previous years and economic activity in prior quarters, the resurgence of inflationary pressures raises questions about the effectiveness of these measures, especially if inflation persists. This tension could further complicate the economic outlook, eroding confidence in the Chilean economy and potentially prompting a review of monetary policy to effectively mitigate inflationary pressures.
However, there are external factors that could partially alleviate pressure on the Chilean peso. China, Chile's main trading partner, has announced an economic stimulus package of USD 1.4 trillion, which could increase demand for copper, one of Chile's key exports. This increase in demand could provide additional support for the peso, with a positive effect on national accounts.
Nevertheless, the situation of the Chilean peso remains vulnerable to international factors, particularly to U.S. economic policies. The re-election of Donald Trump and his proposals for new trade barriers could heighten global risk aversion, prompting investors to shy away from emerging market currencies, which would add pressure on the Chilean peso. This combination of internal and external factors requires prudent management and constant monitoring by the Central Bank to balance inflationary pressures without compromising economic stability."
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