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LarrainVial Predicts Start of Chile Rate Cutting Cycle At This Meeting

CHILE
  • LarrainVial believe Chile’s core inflation will drop to 4% by end 2023 and headline inflation to 3.5% thanks to a substantial contraction in domestic demand. They now forecast the central bank will start rate cuts on June 19, with a 25 basis-point reduction.
  • “A persistent drop in monthly inflation (of around 0.0%-0.2%) and some months of negative readings, would induce BCCh to cut its MPR by at least 100 bps in every monetary policy meeting from July onwards,” LarrainVial’s director of research said.
  • In this scenario MPR would fall to around 6.5% by year-end 2023.
  • If BCCh cuts MPR to 6.5% or less by Dec. 2023 core inflation should fall to 2% y/y by June 2024.
  • If BCCh only cuts by 25bps in upcoming meetings, inflation would fall to 0% y/y by end 2023 amid persistent drop in domestic demand as real interest rates would be above 7%. (BBG)
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