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BBVA Still Expect BCCh To Cut By 50bp At Next Two Meetings

CHILE
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  • BBVA continue to expect the BCCh to cut the policy rate by 50bp in each of its next two meetings. This is in line with the BCCh’s baseline scenario laid out in its March 2024 monetary policy report, and a view BBVA have held since the release of the IPoM.
  • A notable risk premium had been embedded since mid-April, and instruments such as 1Y1Y forwards had priced a terminal rate of close to 5.50%. The reversion of this premia was driven by a reduction in external pressures and domestic inflation pressures. The latest data prints out of the US and the recent FOMC meeting took further hikes off the table, while non-core CPI in Chile mostly remains well anchored.
  • With the recent CLP rally, the market will continue to price a greater likelihood of the BCCh reaching a 4.00% neutral rate by YE2025. BBVA remain received in 1Y1Y, with pricing likely to head towards the 4.25-4.50% range. For now, the BCCh cares more about 2Y CPI expectations, noting that as long as these remain anchored and the CLP is under control, they will continue to cut despite some near-term rebounds in headline inflation, which is already embedded in their projections.
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  • BBVA continue to expect the BCCh to cut the policy rate by 50bp in each of its next two meetings. This is in line with the BCCh’s baseline scenario laid out in its March 2024 monetary policy report, and a view BBVA have held since the release of the IPoM.
  • A notable risk premium had been embedded since mid-April, and instruments such as 1Y1Y forwards had priced a terminal rate of close to 5.50%. The reversion of this premia was driven by a reduction in external pressures and domestic inflation pressures. The latest data prints out of the US and the recent FOMC meeting took further hikes off the table, while non-core CPI in Chile mostly remains well anchored.
  • With the recent CLP rally, the market will continue to price a greater likelihood of the BCCh reaching a 4.00% neutral rate by YE2025. BBVA remain received in 1Y1Y, with pricing likely to head towards the 4.25-4.50% range. For now, the BCCh cares more about 2Y CPI expectations, noting that as long as these remain anchored and the CLP is under control, they will continue to cut despite some near-term rebounds in headline inflation, which is already embedded in their projections.