Central Bank of Chile decreases rates in June

At its meeting on 18 June, the Central Bank of Chile agreed to reduce the monetary policy interest rate by 25 basis points to 5.75%. This followed a 50 basis-point cut at the prior meeting and took total cuts to 550 basis points since the middle of last year.

The key domestic factors driving the Central Bank's decision were moderate headline and core inflation, and inflation expectations for two years ahead which remained well-anchored at the Bank’s 3.0% target range.

The Central Bank indicated that the majority of the rate cuts anticipated for this year are now behind us. However, it also mentioned that it expected to continue decreasing rates ahead, without being specific on the time frame. Most of our panelists see between 25 and 125 extra basis points of cuts by end-2024, though a few see rates unchanged.

On risks to the outlook, Goldman Sachs analysts said: “Risks to our path for the monetary policy rate are skewed to the upside. This is especially true if higher electricity tariffs have a significant impact  on inflation in 2025 as the MPC suggests in the post-meeting statement. Overall, the economy has resolved its large macroeconomic imbalances, the output gap has narrowed, and inflation expectations are well anchored, which still argues in favor of lower policy rates going forward, in our view. A slower convergence of inflation to the central bank’s 3% target than previously thought, however, could slow down the pace of monetary policy normalization in the near term.” On their policy rate forecasts, Itaú Unibanco analysts said. “We expect the BCCh to cut rates to 5.25% in two 25-bps adjustments, followed by a prolonged pause. We cannot rule out pauses in-between adjustments.”

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