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Goldman Sachs: 50BP Cut Better Aligns With Central Scenario in March IPoM

CHILE
  • Goldman Sachs expect the MPC to continue its easing cycle and deliver a 50bp rate cut to 5.50%. In their assessment, the consecutive 50bp cut better aligns with the central scenario the MPC outlined in the March Quarterly Monetary Policy Report.
  • More importantly, in their view, the minutes from the May meeting showed that the MPC remains dovish despite firmer inflation readings in the first months of the year. At that juncture, all Board members agreed that the options to cut the policy rate by 50bps or a larger 75bps were “plausible" but opted for the 50bp option mostly because it was the most consistent with the central scenario of the March IPoM.
  • Three weeks later, GS anticipate their assessment of the macroeconomic backdrop has not materially changed.
  • The central bank is also scheduled to release the June IPoM on Wednesday. GS believe the most significant development since the March report has been the increase in copper prices (up 12% since the statistical closure for the March IPoM) and the successive strengthening of the CLP (around 5% since the same date).
  • On inflation, the cumulative headline and core inflation prints in March-May were broadly in line with the March IPoM and GS anticipate a soft print in June driven by lower gasoline prices, the lagged passthrough from the stronger currency, and the impact from the cybersale event on the first week of the month. The upcoming increase in electricity tariffs, however, remains a risk to inflation dynamics in the near-term.
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