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Scotiabank Expecting Bolder-Than-Expected 100BP Rate Cut

CHILE
  • Chile’s BCCh is widely expected to roll out the first rate cut among core Latam central banks this Friday. After a divided rate hold in June that saw two members vote for a 50bps cut, Scotiabank’s team in Santiago believes the bank will lower the monetary policy rate by more than even the ‘doves’ wished, 100bps towards a year-end 7.50% rate.
  • This is also a larger cut than the 75bps move expected by the median economist and trader polled in the latest BCCh surveys. Note, however, that in the economists survey, 36% of respondents think the BCCh will cut rates by 100bps or more (30% at 100bps). On Tuesday, we get a last pre-decision update of traders’ views in the BCCh survey (that also last showed 36% seeing a 100bps+ cut).
  • Scotiabank’s economics team explains that the BCCh’s expectation of only a 0.2% contraction in GDP is much too rosy, and an economic reacceleration in H2 would require significant cuts and a pick-up in public and private investment.
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