JPMorgan and Scotiabank: Chile should evaluate emergency hike

The Central Bank of Chile should consider an interest rate hike before its next policy meeting, after inflation surprised investors by more than doubling expected, according to JPMorgan Chase & Co. and Bank of Nova Scotia.

Inflation expectations are rising, and waiting until the March 29 rate meeting to raise borrowing costs may be too late, according to comments from both banks on Tuesday. Consumer prices rose 1.2% last month, well above the 0.5% median estimate of analysts surveyed by Bloomberg, while annual inflation soared to 7.7%, the National Institute for Statistics reported.

Consumer prices continue to rise above the 3% goal in a colossal challenge for Rosanna Costa, who assumes as the first president in the history of the Central Bank of Chile. Monetary policymakers have already raised borrowing costs by 500 basis points since July on the strength of consumer spending and rising commodity prices. The situation is aggravated by further spikes in oil prices.

“It is clear that the inflation drive at the beginning of the year is much stronger than expected, associated with the overheated state of the economy due to massive fiscal transfers to households,” wrote Diego Pereira of JPMorgan. “We now expect the policy rate to rise to 7.5%, and we expect the Council to raise it 175 basis points at its next meeting, which may occur earlier than the one scheduled for the end of March.”

Five-year interest rate swaps rose 29 basis points in afternoon trading as investors weighed the odds of steeper rate hikes.

Chile’s central bank did not immediately respond to a request for comment on the likelihood of an emergency meeting.