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Chile Monetary Policy January 2024

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

On 31 January, the board of the Central Bank of Chile (BCCH) cut the monetary policy rate (MPR) from 8.25% to 7.25%.

The decision to continue to cut rates was partly due to sustained falls in headline and core inflation in recent months. In particular, the Bank commented that both headline and core price pressures undershot its expectations in December. Moreover, the Bank judged that inflation would return to its 3.0% target quicker than it had previously anticipated, and mentioned that market inflation expectations were well anchored at the 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 275 basis points of additional cuts by end-2024, with a spread among panelists’ end-2024 forecasts of 200 basis points.

On the outlook, Itaú Unibanco analysts said:

“With inflation expectations anchored, inflation to reach the 3% target ahead of schedule, the positive output gap having closed, monetary policy must quickly fall towards neutral to avoid the risks of overtightening. In the short-term we expect the BCCH to continue to swiftly cut rates, and more significantly moderate the pace of cuts towards the second quarter. We expect a yearend rate of 4.5%.”

Credicorp Capital analysts said:

“The inflation convergence to the target could be reached as soon as 1Q24, with risks of inflation hovering below 3% for several quarters ahead. Whether this scenario materializes, we raise the risk of more aggressive cuts in the April meeting (125bp) and a higher likelihood of seeing the benchmark rate around its neutral level by the end of 3Q24.”

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