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MNI Chile Central Bank Preview – Oct 2023: More Cautious Tone Expected

MNI Chile Central Bank Preview - Oct 2023

MNI Chile Central Bank Preview - Oct 2023

Executive Summary

  • The BCCh is broadly expected to continue its easing cycle with another 75bp rate cut, bringing the overnight rate target to 8.75%.
  • While this would be in line with prior guidance, analysts have started to question whether the deteriorating peso and more complex external backdrop might prompt the BCCh to slow the pace of easing before year-end.
  • Indeed, the most recent central bank communications on such issues highlight that this week’s decision is by no means a foregone conclusion.

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Central Bank Board To Discuss Impact of CLP Depreciation

In an emailed response to questions from the press, Chile’s central bank said it expects to assess the ‘important’ CLP fall as well as the rise in the prices of some commodities likes oil at this week’s policy meeting. While reiterating the global outlook remains complex, the BCCh said “the peso has had a very significant depreciation and long-term interest rates have increased”.

The outright mention of currency weakness comes amid an impressive 16% rise for USDCLP from the July lows, shortly before the initiation of the easing cycle. The rather uncommon vehicle of messaging highlights the concern and indicates a potential escalation from prior rhetoric from central bank officials. Most notably, President Costa remarked that the recent depreciation of CLP will only have a short-term effect on prices, adding that the 3% inflation target for the second half of 2024 remains unchanged.

USDCLP Upward Trend Remains In Place

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