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Expecting a Bolder 75BP Rate Cut

CHILE
  • Although November's inflation figure could put a note of complexity in this month's BCCh monetary policy decision, Santander estimate that the room for aggressive rate cuts remains fully in force.
  • In the most probable scenario, CPI will close the year at levels somewhat above what was estimated in the September Report (4.3%). Added to this are somewhat better activity figures, which will mean that 2023 will end with growth at the top of the range given in the last report.
  • However, despite the recent surprise, the core CPI will be significantly lower than projected in September. This, plus the fact that inflation will probably be on target before the policy horizon and that the MPR is still well above its neutral level, fully justify continuing with aggressive rate cuts. In this scenario, Santander continue to consider a 75bp reduction in the next meeting as the most plausible option. A minor move could only be considered based on a risk management strategy.
  • Thus, by 2024, the reductions should continue intensely, particularly if the rate cuts outlined by the Fed in the dots of its December FOMC are carried out. If market bets materialise, in Chile we could see decreases in the MPR that would place it below 5% at the end of next year. In any case, this value will continue to be higher than the neutral MPR, which according to Santander estimates would reach 4.25%.
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