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Barclays Believe BCCh Statement Opened Door To Larger Cuts

CHILE
  • Barclays now expect cuts of 125bp in the next four meetings, taking the policy rate to 6.50% by year-end, and 5.25% by March 2024, followed by a final 25bp cut in April. This compares with their previous projection of 7.75% in by end-2023 and 6.25% in January 2024.
  • Barclays believe the market was still shy into the meeting, putting too much weight on the corridor's central scenario. Friday's meeting was a reminder that the BCCh is a reactive central bank. The Board and its economics team had been focused on spot (core) inflation, likely given the lack of confidence in their own inflation forecasts following last year's misses.
  • But as the disinflation process gained momentum, Barclays had expected them to shift to their more usual forward-looking reaction function with 2y ahead inflation expectations already anchored at 3% for some months. And this appears to now be the case.
  • Moreover, on the way up, the upper bound of the corridor served as a near-term anchor of some sorts for market pricing. The lower bound of the corridor should be this anchor on the way down, with risks skewed to going below this as the MPR gets stale.
  • The post-meeting statement opened the door to larger cuts in coming meetings, in their view, particularly if core CPI data is within historical averages.
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