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Chile Monetary Policy May 2024

Chile: Central Bank of Chile decreases rates in May

At its meeting on 23 May, the Central Bank of Chile decided to lower the monetary policy interest rate (MPR) by 50 basis points to 6.00%, in line with market expectations and taking total rate cuts to 475 basis points since mid-2023.

The decision to continue to cut interest rates was driven by declining core inflation in recent months, both headline and core inflation being within the 2.0%-4.0% target range, and two-year-ahead inflation expectations which were well anchored at the midpoint of the target range.

The Central Bank of Chile indicated that it plans further cuts to the MPR in the future, with the magnitude and timing of these reductions depending on the evolution of the macroeconomic scenario and its implications for the inflation trajectory. Our panelists see between 50 and 200 extra basis points of cuts by end-2024.

Giving their take on the outlook, EIU analysts said:

“We expect the BCCh to reduce the policy rate to 4.5% by end 2024 and to conclude the easing cycle in mid-2025, at 4% (which it considers the neutral rate). The rate will then remain at that level for the rest of the forecast period.”

Itaú Unibanco analysts are more hawkish:

“We envisage a year-end rate of 5.25%, with cuts of 25 bps as of June (a slightly slower pace than previously incorporated). Risks tilt to fewer cuts. During 2025, as the Fed embarks on policy easing, we see the BCCh resuming its cutting cycle and taking the policy rate to 4.5%.”

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