The BCCh cut the policy rate by 25bp to 5.25% in line with expectations and market pricing. The support for the rate cut came mostly from the domestic side, given external environment has not meaningfully impacted the BCCh's key policy measures. Given the current external backdrop, the rhetoric of continued rate cuts is likely to keep some pressure on the CLP as the statement keeps the 4.00% terminal rate vision of the BCCh in sight. We do expect market participants to demand some risk premium to this 4.00% terminal target as well as pricing to converge towards 4.25% from between 4.30% and 4.35%, supporting some steepening in local rates. After taking profit on our long USDCLP trade idea at 930 we remain vigilant on the 890-960 range. We previously engaged in USDCLP short positions at the upper end of the range, and would look to re-enter should there be a bigger selloff that pushes the cross back to around 960, with the external backdrop be conducive and market positioning cleaner.
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