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BofA Expect 50bp Rate Cut Tomorrow, 25bp Moves From June

CHILE
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  • BofA expect a 50bp policy rate cut to 6% tomorrow. They note that BCCh has had a dovish stance, categorising recent inflation and GDP upside surprises as mostly transitory. From next month, BofA expect the central bank to slow the pace further to 25bp cuts, bringing the policy rate to 5% in December. They see risks tilted to faster cuts given the dovish BCCh stance. Following the rally in US rates, they lower the terminal policy rate to 4.75% (from 5%), to be reached by 1Q25, still above the BCCh terminal rate of 4%.
  • Inflation has been higher than expected so far this year, partly due to transitory factors. However, recent global shocks are very supportive of the Chilean currency, including a large jump in copper prices and the recent rally in US rates. This led to a substantial appreciation of the CLP that will facilitate the inflation fight and further support interest rate cuts.
  • The economy is recovering and 1Q activity was strong, as was already expected by BCCh. However, March data were softer and private consumption is lagging. BofA forecast 2.8% GDP growth this year amid expansionary fiscal and monetary policy and the copper price rebound.
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  • BofA expect a 50bp policy rate cut to 6% tomorrow. They note that BCCh has had a dovish stance, categorising recent inflation and GDP upside surprises as mostly transitory. From next month, BofA expect the central bank to slow the pace further to 25bp cuts, bringing the policy rate to 5% in December. They see risks tilted to faster cuts given the dovish BCCh stance. Following the rally in US rates, they lower the terminal policy rate to 4.75% (from 5%), to be reached by 1Q25, still above the BCCh terminal rate of 4%.
  • Inflation has been higher than expected so far this year, partly due to transitory factors. However, recent global shocks are very supportive of the Chilean currency, including a large jump in copper prices and the recent rally in US rates. This led to a substantial appreciation of the CLP that will facilitate the inflation fight and further support interest rate cuts.
  • The economy is recovering and 1Q activity was strong, as was already expected by BCCh. However, March data were softer and private consumption is lagging. BofA forecast 2.8% GDP growth this year amid expansionary fiscal and monetary policy and the copper price rebound.