The BCCh's June policy meeting minutes affirm that the macroeconomic scenario had evolved in line with expectations and that inflationary risks were more balanced, meriting a less contractionary monetary policy going forward. The central scenario of the June IPoM considered cuts in the policy rate in the order of 250 basis points (bp) by the end of the year (taking the policy rate to 8.75% by December-23). Accordingly, all board members considered the options of: (i) maintaining the policy rate at 11.25%; (ii) and cutting by 25bp, but some board members added the option of beginning the easing cycle with a 50bp adjustment. We note that it is not common for board members to add policy options, which are generally recommended by the staff. In the end, the majority of the board opted to stay on hold, but two central bankers voted for a 50bp cut. The magnitude and timing of adjustments would consider the evolution of the macroeconomic scenario.
Some board members favored earlier cuts to avoid an excessive economic adjustment, and limit market expectations of large cuts later. One board member considered a 50bp cut as appropriate, adding that similar movements could occur in upcoming meetings; in the board member's view, this strategy was more appropriate than maintaining the policy rate with a downward bias, which could be interpreted as an anticipation of very aggressive cuts later. Another board member highlighted a high risk that inflation falls more swiftly, even below the target, possibly accompanied by an excessive adjustment in the economy, investment, and employment.
However, with the macroeconomic scenario evolving as expected, several board members felt the policy rate should follow the outlined path (with cuts starting in 3Q23). One board member claimed that data did not suggest that the probability distribution had shifted towards a scenario of an even faster disinflation process and steeper activity decline.
In our view, the minutes suggest that further divided decisions should be anticipated, while the plausible options to be discussed in the July 28 policy meeting would be consistent with the central scenario of the corridor (probably -25bp, -50bp). All eyes are on the June CPI print to be released tomorrow, we expect a monthly rise of 0.14%, in line with the BBG median at 0.1%.