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Santander Expect BCCh To Cut By 100bp Next Week

CHILE
  • Santander expect BCCh to step up the pace of easing next week, cutting the policy rate by 100bp to 7.25%, following a 75bp move in December. Their view is based upon the faster than expected decline in inflation, below trend activity and a weakening labour market. They expect inflation to continue to decline faster than anticipated, reaching target during H1.
  • They believe that BCCh could cut by 75bp next week if there is a new escalation of external tensions or a resurgence of exchange rate volatility, which they deem unlikely. For a cut of more than 100bp to occur it could imply additional tension from the exchange point of view. Further ahead, Santander expect rate cuts to continue at a slower pace, reaching 4.5% at the end of the year and terminating at 3.75% in 2025.
  • They note the main upside risk to their year-end forecast coming from a resurgence of global inflation, which would delay Fed rate cuts and make it difficult for BCCh to lower the MPR below 5-5.5% this year. On the other hand, if the global monetary normalisation cycle is more aggressive, the policy rate could end this year around its neutral level at 4%.
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