Itaú BBA - Chilean Central Bank stays put, keeps neutral bias

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Chilean Central Bank stays put, keeps neutral bias

August 18, 2017

We expect further rate cuts to materialize before yearend

Talk of the Day


At its August monetary policy meeting, the board of the central bank favored keeping the policy rate at 2.5%, in line with market consensus. The press release announcing the decision still holds a neutral bias. Considering no significant change in the growth and inflation outlook from last month, it is likely that the board was again divided regarding the need for additional easing. Last month, Pablo Garcia opted for a rate cut as he saw enough evidence from low inflation to warrant some additional easing. The press release indicated that headline inflation has evolved below the baseline scenario of the 2Q Inflation Report (IPoM). Meanwhile, it noted that inflation expectations have not shown significant deviations.

We expect further rate cuts to materialize before yearend. The minutes of the July meeting illustrated that three (out of five) board members are not opposed to the idea of more easing. We expect the revised baseline scenario in the 3Q IPoM (published on September 6) to show reduced inflationary pressures and hence scope for additional easing to ensure that inflation remains on a trajectory toward the 3% target. Thus, we see the policy rate being lowered to 2.0% by yearend, where it would stay for most of next year. ** Full story here.


According to BCB, the IBC-Br Activity Index rose 0.5% mom/sa in June.The headline came slightly below market expectations (0.7%), but was affected by a 0.2 p.p. upward revision in the result for May. Relative to the same month in 2016, the IBC-Br fell 0.56% (consensus: -0.5%). The index shows a 0.3% qoq/sa gain in 2Q17, above our GDP forecast for the same quarter (0.0% qoq/sa).

CNI will release its industrial business confidence indicator for August sometime during the day.


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