MNI Chile Central Bank Review - July 2023: Dovish Cut & Guidance

Executive Summary

• The Board of the Central Bank of Chile decided to cut the monetary policy interest rate by 100bps to 10.25%. The decision is considered dovish to expectations with the majority of surveyed analysts expecting a more mild 75bp reduction. In contrast to the prior meeting, this decision was adopted unanimously.
• Importantly, the BCCh board “now estimates that, in the short term, the MPR will accumulate a somewhat stronger reduction than was considered in the Monetary Policy Report's central scenario, in line with the results of the surveys conducted prior to this Meeting.” Given the most recent BCCh economist and trader surveys, this would place the year-end policy rate in the region of 7.75-8.00%.
• However, the committee provide the caveat of flexibility; namely that the size and timing of rate cuts will continue to “take into account the evolution of the macroeconomic scenario and its implications for the trajectory of inflation.”
• Analysts have adjusted their year-end policy rate forecasts to acknowledge the more dovish stance of the committee and the greater likelihood of a more front-loaded easing cycle. Furthermore, some believe the developments should prompt further short-term CLP weakness and additional downward pressure on the Camara swaps curve.

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MNI Chile Central Bank Review - July 2023.pdf