​Regarding the recent disturbances in several cities in Chile

CHILE - In Brief 21 Oct 2019 by Igal Magendzo

The impact on financial markets so far has been limited. At 10:50 am the Chilean peso depreciated about 2% against the dollar, in a context in which the exchange rate in several other countries were also increasing, although by somewhat smaller magnitudes. Short-term rates fell 6bp and longer-term rates increased 3bp. Perhaps the largest impact was seen in the IPSA with a drop of around 3%. The 5-year CDS for Chilean sovereign bonds increased 2.9bp.At the moment we do not see reasons for a larger impact, and we could even see a reversal of this morning’s movements. We see no reason why the country risk (probability of default) should increase. The productive capacity of the economy is not diminished at the macro level beyond the specific effects on specific business.However, October’s IMACEC will certainly be affected. According to Central Bank calculations, if a month has one less business day the downward effect on IMACEC is on average 0.4%. Given that much of the activity in the country has not been interrupted, the impact for each working day lost in affected cities should amount to less than that, although it is difficult to calibrate an exact magnitude.A complete reversal of the recent increase in the price of multimodal transport in Santiago, as announced, should have an effect on CPI of -0.03pp. If the INE sticks to its measurement methodology, the increase in the CPI in October would be maintained with a reversal in November’s CPI. Finally, we will be monitoring the effect on some prices, particularly food and other products that are distributed through retail.We don't think the events will affect this week’s Central Bank monetary policy decision. As long as w...

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