Chile: Central Bank stays put in April, but forward guidance grows more hawkish
At its 4 April meeting, the board of the Central Bank of Chile (BCCh) decided to leave the monetary policy rate at 11.25% for the third straight meeting, following aggressive rate hikes last year.
The Bank’s decision not to hike further was likely driven by a desire to support the economy, and by the belief that the 725 basis points of tightening in 2022 was sufficient to eventually tame price pressures. On the flipside, rate cuts were premature given still double-digit inflation and inflation expectations above the 3% target.
The Bank’s forward guidance grew more hawkish, with the BCCh stating that “the economy is adjusting more slowly than expected and inflation is taking longer to come down”, and suggesting that the policy rate would be kept at 11.25% for longer than previously anticipated. This view will likely be further entrenched by March’s inflation data, which saw annual core inflation and month-on-month price pressures pick up.
While the Consensus is still for rate hikes to begin this quarter, compared to last month’s forecasts more panelists now see the easing cycling being delayed until the second half of the year. Moreover, there is a notable discrepancy over the pace of monetary easing, with a 525 basis-point spread among end-2023 forecasts.
Giving their updated outlook on inflation and interest rates, analysts at Itau Unibanco said:
“More solid activity and current inflation data are consistent with a slower disinflation path. We expect inflation to end the year somewhat above our current 4.3% call. The slower adjustment of core inflationary pressures together with the central bank’s more recent guidance led us to postpone our call for the start of the easing cycle from June to 3Q23. Our preliminary estimate for April CPI is 0.4%, leading annual inflation to around 10% […] We now consider a more cautious cutting cycle that results in a year-end rate of 9.25% (8% previously).”