Andrés Pérez M. & Vittorio Peretti
The Board of the central bank once again unanimously maintained the policy rate at 11.25% and signaled that rates would remain at this level until there are clear signs that inflation is converging to the 3% target, although the macro implications of the recent CLP appreciation will be evaluated in the next IPoM in early April.
While annual inflation in December moderated from November (-0.6pp to 12.8%), inflation accumulated in the final two months of 2022 (including the core component) was above the central bank's internal forecasts. Additionally, the two-year inflation expectations continue to be above 3% (latest analysts survey sits at 3.3%, while the trader survey reached 3.5%). Activity on the other hand is normalizing gradually, led by consumption and investment, while the labor market is loosening, wage dynamics soften and private sentiment remains downbeat.
The Board acknowledges that monetary policy has made a significant adjustment, however inflation remains high and risks persist. Using the analyst survey, the ex-ante one-year real rate is around 6.25% (6% at the previous meeting). Overall, the Board continues to signal a cautious approach. We expect the central bank to wait until mid-year (when we expect inflation to be closer to 8.5%), before starting an easing cycle that would take the policy rate to 7% by yearend, with further cuts into 2024. While the guidance in the statement suggests that a cut as soon as April is unlikely, if the recent CLP appreciation is deemed to persist, inflationary pressures over the forecast horizon would be significantly lower, raising the chance that the easing cycle commences ahead of our call. The minutes of the meeting will be published on February 10. The next Monetary Policy Meeting will be held on April 4.
Andrés Pérez M.
Ignacio Martinez Labra