MNI BCCh Preview - Mar 2025: Cautious Hold Expected
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Executive Summary
- The BCCh looks set to keep its policy rate unchanged at 5.00% for a second successive meeting on Friday, amid elevated inflation and an uncertain external backdrop.
- The Bank is likely to maintain a cautious tone, while it assesses incoming data, with recent surveys pointing to the likelihood of an extended pause ahead.
- Concerns about potential hikes have moderated, however, as inflation and inflation expectations have dipped from recent highs, and the central bank is still seen as having some room to cut further later this year.
At the previous monetary policy meeting in January, the BCCh Board struck a more hawkish tone as it noted that inflation risks were mounting, signalling an extended pause to its easing cycle. The subsequent minutes to that meeting also highlighted the Board’s concern about rising two-year inflation expectations, which seemed to open the door to potential rate hikes later this year. Since that meeting, however, latest inflation developments should have helped to reduce those concerns, with inflation easing from recent highs and inflation expectations falling back notably.
In particular, the central bank’s latest traders survey this week revealed that market participants now see CPI inflation at 3.2% in 24 months’ time, down from 3.3% last month and 3.5% ahead of the January MPC meeting. On a one-year horizon, inflation is now expected to be at 3.5%, as compared to 3.7% last month and 4.15% in January. The equivalent central bank economist survey also showed a decline in analysts’ year-end inflation expectations to 4.0%, from 4.1%, although the end-2026 estimate edged up by 20bp to 3.2%.