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Chile Monetary Policy April 2024

Chile: Central Bank cuts rates in April; signals further cuts ahead

On 2 April, the board of the Central Bank of Chile (BCCH) cut the monetary policy rate (MPR) from 7.25% to 6.50%. Rates have now fallen by 475 basis points since their peak last July.

The decision to continue to cut rates aimed to boost economic activity amid sustained falls in headline and core inflation since the middle of last year, notwithstanding an uptick in price pressures in February. Moreover, inflation expectations for the coming two years were well-anchored at the Bank’s 3.0% target.

The Central Bank made clear that interest rates would be cut further in the coming months. This is in line with our panelists’ projections: Our Consensus is for around 200 basis points of additional cuts by end-2024, with a spread among panelists’ end-2024 forecasts of 125 basis points.

On the outlook, Itaú Unibanco analysts said:

“Inflation above the target, lingering upside inflationary pressures, and a more cautious Fed stance lead us to expect cuts of 50-bps in the near term, and then eventually slowing to 25bps once the policy rate approaches the upper end of the 3.5-4.5% neutral range.”

Goldman Sachs’ Sergio Armella had a similar view:

“The central bank still shows a willingness to continue with substantial cuts in the next few meetings, and we see its inflation forecasts for 2024 as conservative. We see our expectation for the central bank to slow its pace of cuts to 50bps in the next two meetings and to 25bps in the two meetings in the third quarter of the year.”

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