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The central bank’s board unanimously held the policy rate at 11.25%, and retained a hawkish forward guidance. The board highlighted that non-mining activity has evolved as anticipated, while the core inflation correction is expectedly unfolding gradually. The signaling is in line with the recent IPoM guidance that pushed the possibility of initiating a rate cut cycle from 2Q to 3Q23. The board continues to say that it is appropriate to maintain the policy rate at 11.25% until the state of the macroeconomy indicates that the inflation convergence process to the 3% target has been consolidated. With the decision, the one-year ex ante real rate (using the analyst survey expectation) is roughly at 7%, significantly above the central bank’s neutral real rate estimate of 0.75%.  


Uncertainty about the global scenario remains high, given fears about economic growth and possible banking system vulnerabilities.  


Beyond weaker mining, activity has unfolded in line with the IPoM scenario.  Indicators linked to consumption have continued to adjust downward, while those for investment reaffirmed its weakness. In the labor market, a rising unemployment rate is linked to a reduction in employment and labor force recovery. Real wages continue to recover. In this context, the perception of the economy by companies and households remains pessimistic. 


Core inflation is adjusting gradually. The decline in headline inflation to 9.9% in April was in line with expectations, while the core component expectedly fell by a smaller magnitude to 10.3%. While the analyst survey for May showed the key two-year inflation expectation anchored at the 3% target for the third consecutive month, the board favored caution by referencing that such anchoring is not widespread (trader survey; asset prices). 


We expect the beginning of the easing cycle to occur in July and consider a cautious easing pace that results in a year-end rate of 9.25%. 

Nevertheless, as inflation remains elevated, persistent core inflation leading up to the July policy meeting, could lead to a further delay in rate cuts. The minutes of the May policy meeting will be published on May 29.


Joao Pedro Resende

Andrés Pérez M.

Vittorio Peretti 

Ignacio Martinez Labra