Chile’s central bank (BCCh) decided to cut the policy rate by 25bp to 5.75%, in line with consensus. The decision was split, with a 4-1 vote for a -25bp cut (vs. -50bp). Amid the cautious shift, policymakers noted some external pressures (inflation, Fed cut delays, and a strong USD). Awaiting more details of the revised projections in the IPOM, the board noted the more relevant novelties were the stronger domestic demand in 1Q24 and its potential to be sustained by high copper prices, as well as the increase in electricity rates that can impact inflation into 2025. As such, the inflation path may be set a bit higher along with the output gap, in our view. The board sees the easing continuing, but adjustments as more marginal from here as ‘the bulk of cuts is already made’. We still expect the BCCh to signal a terminal rate of 4.00-4.50% by YE25. The cautious shift in March’s IPoM provided more flexibility and the BCCh is choosing a less dovish path for this last mile.
For more, including views on FX and rates, please see full note.