2026/01/05 | Andrés Pérez M., Vittorio Peretti, Andrea Tellechea & Ignacio Martínez
In December, the BCCh unanimously cut the policy rate by 25 bps to 4.5%, as widely expected. The IPoM that accompanied the meeting’s discussion reduced the inflation forecast, raised the short-term growth outlook, and slightly raised the nominal neutral rate range estimate to 3.75%-4.75% (up by 25 bps from the previous estimate). See our note.
According to the December Monetary Policy Meeting minutes, the Board stated that the clearly dominant option was cutting the policy rate by 25 basis points. However, one Board member raised the possibility of a 50 bps cut (very likely from outgoing member Stephanie Griffith-Jones) considering that the output gap was closed and inflation was close to the target. Nonetheless, other Board members quickly dismissed this alternative, emphasizing the need to avoid signaling that the inflation problem was resolved or that risks had disappeared.
A faster convergence of inflation, particularly in goods. The Board discussed the factors behind the faster-than-expected inflation convergence observed in recent months following the September IPoM. On one hand, this was influenced by the CLP appreciation. On the other, the potential impact of trade diversion on imported goods prices and signs of productivity gains. Regarding inflation risks, the Board noted that these had diminished. In the short term, the peso’s appreciation, slower growth in labor costs, and a moderation in private consumption—consistent with expectations—were relevant. Nevertheless, close monitoring of these developments was necessary.
In the medium term, risks of stronger spending dynamics and higher inflationary pressures. The Board highlighted that, in terms of activity, spending was stronger than anticipated earlier in the year, which could lead to increased inflationary pressures, as reflected in the upper bound of the MPR corridor. However, factors such as labor market slack and signs of productivity improvements could mitigate this risk.
Our view: What is the rush when you’re so close to neutral? Our base case is for the BCCh to remain on hold during the first few meetings of the year and reduce the policy rate by 25 bps to 4.25% in June. Risks tilt towards the BCCh delaying the final cut and simply closing the cycle at the current 4.5%. Policy is already well positioned to manage shocks, under the expectation of a slightly positive output gap, inflation projected to converge to the 3% target from below later this year, anchored inflation expectations, and a sustainable CAD. The next monetary policy meeting is scheduled for January 27.