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Barclays Economists Leaning Towards 75BP Cut

CHILE
  • It is unclear to Barclays that authorities are concerned enough to change their long-telegraphed plans of a 75bp cut for Thursday's meeting. Their economists note it's a close call between 75bp and 50bp, leaning towards a 75bp cut in line with this week's trader survey (EOF).
  • There is little known about the response to a question from El Mercurio, and whether this "reassessment" would even produce materially different results from the September IPOM. Delivering a 75bp cut is the path of least resistance for the BCCh, considering where we stand at the time of writing, as it is in line with recent communication.
  • Sticking to the 8.00% year-end target would certainly be read as dovish and likely reignite CLP underperformance. Authorities could alternatively remove this target and simply offer more hawkish guidance, adding that they are monitoring the FX market closely for dislocations or spillovers to medium-term inflation expectations, and leave the door open for a reduction in the pace in the December meeting if the inflation outlook worsens. This would come as a disappointment to the market versus current pricing, but would at least show that the Board is more aligned with other EM central banks, which are concerned about FX volatility.
  • A hawkish 75bp combined with some action in the USD purchase programs could be interpreted as more reactive and calm the peso in the near term.
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