Strong September activity data out of Chile this week adds to signs that that the economy is starting to overheat, which will put even more pressure on the central bank to take some steam out of the recovery. We expect another 125bp rate hike at its next meeting in December, to 4.00%, taking the policy rate above the central bank’s estimate of neutral (3.25-3.75%). Elsewhere, the initial approval of a constitutional amendment in Brazil which would free up space for higher public spending adds to the evidence that the government's fiscal discipline is waning.
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