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Scotiabank Economists Forecast 25BP BCCh Rate Cut This Week

CHILE
  • Scotiabank economists expect that the BCCh will begin its cutting cycle this week with a 25bps reduction. If, on the other hand, the bank chooses to leave its policy rate unchanged, the team foresees an aggressive cut at the BCCh’s April meeting, which seems a long time away.
  • In December, the BCCh conveyed a hawkish tone, expressing particular concern about the persistence of inflation and 2-year inflation expectations remaining above 3% (3.5% at the December meeting), despite declining in the last few months.
  • Scotiabank see more risks of negative than positive surprises in inflation in the near-term. Since last December, 2-year inflation expectations have fallen according to various surveys, to 3.3% in the January Survey of Economic Expectations.
  • The main drivers continue to point to a softening in inflation figures in the coming months. The CLP’s ~6% appreciation since the December meeting, ongoing declines in international food prices, and a reduction in expected non-mining GDP in 2023, alongside elevated inventories are all factors that point to weaker inflation.
  • In their view, an unchanged decision on Thursday would prompt the magnitude of the reference rate cut in April to be sizable, at least 150bps. After this, slowing inflation and thus benchmark rate cuts could be aggressive.
  • Scotiabank estimate that annual inflation will decrease to 3.7% y/y in December 2023, when we see the reference rate lowered to 4.0%.
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