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We expect the BCCh step down the pace to 50-bp at the May meeting

The minutes of the April meeting showed Board members evaluated cutting the policy rate by either 75bps or 100bps, while the call by one Board member to consider a 50bp cut was swiftly discarded on the basis that there was insufficient evidence to justify such a move. All Board members agreed that the accumulated data gathered since late January indicated that the policy rate should continue to fall. The transitory nature of the factors the upward surprises in inflation and activity should dissipate within the monetary policy horizon. In this sense, all Board

members stated that the options of cutting the policy rate by 75 or 100 bps were plausible. The Board member that raised the possibility of evaluating a 50 bp justified the call if more weight was placed on the upside inflations risks. Choosing between 100bps or 75bps was viewed as a decision more related to tactical and risk elements. Finally, the 75bp cut was deemed the best option as it provided greater flexibility in the event that some of the central scenario assumptions (including transitory cost pressures) did not materialize, and it avoided surprising the market that could affect the correct transmission of the Board's assessment of the economic scenario and inflation path.


Even though the positive surprises early this year would be mostly transitory, the Board considers higher activity and inflation for 2024. In terms of activity, despite the assessment of the transitory nature of some elements behind the January and February surprises, the performance-to-date would permit for somewhat higher activity growth this year. On the inflation front, the Board’s evaluation of the upward surprises in the first two months of the year were the result of the CLP depreciation, external price increases and readjustments in some local prices. Regarding the CLP performance, the Board discussion suggested the sensitivity of the CLP to the interest rate differentials with the US has been higher than in the past, however, once the prospects of rate cuts consolidate in the US and Latam, the REER would likely appreciate and reduce inflationary pressures ahead.


Our take: Not surprisingly, the minutes were in line with the decision and the IPoM’s main messages. As we expected, the Board analyzed cutting the policy rate by 75bp and 100bps, deciding unanimously for the smaller sized cut. Importantly, at the time, market pricing appeared skewed towards an even smaller cut, not analyzed by the Board in the April meeting. Looking forward, the BCCh has a lot less room towards neutral, where the main risk we see going forward continues to be the external scenario, especially, heightened geopolitical tensions and the postponement of the start of the FED rate cuts. Furthermore, the BCCh acknowledge that the latter is affecting the exchange rate significantly and with a greater sensitivity. In this regard, decisions will likely continue to be taken meeting by meeting, following a data dependent mode. Overall, we expect the BCCh to once again step down the pace to 50-bps at the May 23 monetary policy meeting.


Andrés Pérez M.

Vittorio Peretti  

Ignacio Martinez Labra