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Scotiabank Provide Further Information On Tomorrow’s BCCh Decision

CHILE
  • The assessment at the margin of the board as a whole will shift from the diagnosis of a necessary return to macroeconomic equilibrium, which characterized past monetary policy messages, to one of economic stabilization. This would be based on recent consumption figures, credit flow and reduced policy uncertainty. Scotiabank believe this will be the board’s main line of argument in the face of possible concerns about economic over-adjustment.
  • Swap rates have internalized more aggressive cuts in the short term and a benchmark rate that would be 375 bps below its current level (7.5% as of December). Although this constitutes an incentive for an aggressive cut by the BCCh in the short term, that level of reference rate should be read with an implicit inflation projection of under 3.5% for 2023 and under 3% in the medium term.
  • Scotiabank estimate that the BCCh will not subscribe to such a view of inflation and consequently of the benchmark rate based on the still little information to make such a projection.
  • Scotiabank expect that the BCCh board will actively debate between an initial 75bp and a 100bp cut, with a greater inclination for the 75bp cut, as it would allow a return to unanimity, be compatible with recent surprises and maintain the validity of the rate corridor.
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