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Chile’s current account, the peso and FX debts

The further widening of Chile’s current account deficit in Q2 combined with an increased reliance on portfolio inflows leave the Chilean peso vulnerable to a deterioration in investor risk appetite. We think the peso will remain under pressure and, as a result, monetary policy will be kept tight for longer than most expect. One crumb of comfort is that the risks posed by foreign currency debts look relatively low.

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