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Chile’s current account deficit flashing red

Chile is likely to run a current account deficit of 7% of GDP this year, the widest since 1985. Worryingly, this deficit is being increasingly funded by volatile portfolio inflows, making the economy (and currency) particularly vulnerable to swings in investor risk appetite. One key implication is that the central bank will raise interest rates further than most expect in order to alleviate these growing vulnerabilities.

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