MNI Chile Central Bank Preview - Dec 2023: Easing Pace Expected To Reaccelerate

Executive Summary

• The majority of surveyed analysts believe the BCCh will reaccelerate the easing pace in December and cut the overnight rate by 75bps to 8.25%. A strong disinflation trend and weak economic activity certainly provide merit to the option of a bolder rate reduction at this juncture.
• However, forecasters remain divided with some expecting another 50bp move. Both higher-than-expected inflation data for November and previous action to curtail CLP weakness may be supportive factors for another 50bp move.

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MNI Chile Central Bank Preview - December 2023.pdf

Central Bank President Says Uncertainty Levels Declining

Speaking on December 06, BCCh President Rosanna Costa reiterated that the key interest rate will continue to decrease, adding that the economy has been showing signs of stabilization, including private consumption, which is backed up by GDP growth in Q3 coming in higher than the central bank expected. Costa also noted that country has made advances in inflation but there is still work to do and that convergence to target has been more complicated lately as the economy has been going through intense shocks.

Interestingly, despite the majority of surveyed analysts expecting a reacceleration of rate cuts this month, both the latest BCCh economist and traders survey’s median estimates are predicting another 50bp reduction. Important to note is that both survey results were published in close proximity to the December FOMC meeting and may not have fully reflected the dovish pivot from the Federal Reserve and subsequent loosening of financial conditions.

Significantly, the October BCCh statement placed high importance on the “tightening and volatility of global financial conditions” and so given the latest developments, the central bank may be more comfortable resuming the previously anticipated pace of easing. Furthermore, President Costa has reiterated that future rate cuts are to consider macroeconomic developments, as well as the global outlook, which may have tilted the balance of surveyed analysts towards forecasting a 75bp move this month. The quarterly monetary policy report (IPoM) released on Wednesday will provide updated economic forecasts and a more detailed picture of the interest-rate outlook.