Barclays Expecting More Moderate 75BP BCCh Rate Cut

Barclays expect the BCCh to cut the policy rate by 75bp in the September meeting, a reduced pace. Following the stronger-than-expected IMACEC print for July, the increase in 12-month ahead inflation expectations and the weakening of the CLP, Barclays think the BCCh is likely to prefer slowing the rate of cuts.

The pre-meeting traders’ expectations survey shows an expected 75bp cut, and in light of data since the last meeting decision, Barclays think the BCCh is likely to prefer to not surprise the market with a more-dovish-cut than expected. Furthermore, BCCh Governor Costa’s more hawkish verbal intervention after the last meeting emphasized that a smaller cut than in the previous meeting was a possibility.

In terms of forward guidance, Barclays expect that if the BCCh delivers a 75bp cut, it would be more likely to be less explicit about the pace of future cuts. In contrast, if it were to cut by 100bp (which Barclays still think is possible), it is more likely to give hawkish forward guidance and to suggest a smaller pace of cuts in future meetings.