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CHILE: JP Morgan Forecasting Lower Terminal BCCh Rate

CHILE
  • Following today’s CPI data in Chile, JP Morgan maintain as base case the BCCh resuming the easing cycle in December, with a 25bp cut. The innovation to their prior monetary policy path is that JPM now project a lower terminal rate at 4.5% by mid-2025, owing to recent developments in the US labour market which prompted changes in the risk distribution of inflation and growth ahead. This assumption hinges on no US recession (cumulative probability 45% by 2H25), allowing the domestic output gap to hover around equilibrium.
  • On inflation, the adjustment in electricity prices has exerted less upside pressure on core than headline inflation. Therefore, while headline CPI is the policy target, focus on core will likely be increased in the coming months so to assess the probability of headline convergence to target by the policy horizon. 
  • Additionally, it is against this backdrop that the relevance of breaking down core inflation in goods and services gains more relevance than in prior months. Thus, it’s worth noting the core services have continued to decelerate, converging below pre-social unrest averages.
  • In terms of forecasts, the 2024 year-end headline CPI is fine-tuned just 5bp higher, to 4.5 %oya and then projected at 3.8%oya by Dec’25.
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