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SocGen: Expecting First Rate Cut In Third Quarter 2023

CHILE
  • As inflation has begun to ease, ex-ante real rates are high enough and the economy contracting, SocGen expect BCCh to keep rates unchanged through 1H23. Its next move is likely to be a rate cut, they think in 3Q23.
  • Inflation and inflation expectations have begun to fall. Both the headline and core inflation declined moderately in October. However, 11-month inflation expectations have fallen quite meaningfully in the past three months from 7.3% to 5.8%. Ex-ante the real interest rate has risen from 0.8% in May to 5.45% in November, justifying the BCCh’s decision to take a break.
  • SocGen’s end-2023 headline and core inflation forecasts are 5.14% yoy and 5.69%, respectively. The key upside risk to their inflation forecasts are external sector imbalances that continue to put significant pressure on the peso. Meanwhile, the economy has contracted in six of the first nine months this year, with the consensus, IMF and SG expecting it to do so by between 0.8% to 1.5% next year.
  • Overall, SocGen believe that with ex-ante real rates high enough, the economy contracting and inflation moderating, the BCCh will continue its rate hike breather in 1H23. They currently expect the easing cycle to begin in 3Q23 (when inflation declines sufficiently, and global financial conditions stop tightening), with risks around the timing largely balanced.
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