MNI Chile CB Preview - Oct '25: On Hold Again, Eyes On Dec Cut
Executive Summary
- The BCCh is expected to hold the reference rate steady at 4.75%, as the board continues to closely monitor the evolution of core inflation and its fundamentals.
- While September inflation data confirmed an expected uptick, analysts have pointed out that the core reading was marginally below the central bank’s more hawkish estimates.
- This should keep a December rate cut firmly on the table, a view echoed by both BCCh economist and trader surveys.
The Board of the BCCh struck a more cautious tone last month, at it voted unanimously to remain on hold, amid concerns about persistent core CPI inflation pressures. The subsequent minutes to that meeting revealed that several board members felt that the risks to inflation had increased, and that although a continued convergence of inflation to target next year was anticipated, those risks should not be ignored. In addition, several members also explicitly acknowledged for the first time that the neutral rate is likely to be in the upper half of the estimated 3.5-4.5% range.
In this context, and with core inflation tracking above its projection, the Board said that the only option was to keep the policy rate at 4.75%, while it continues to monitor the evolution of core inflation and its fundamentals. Going forward, the Board reaffirmed its intention for the policy rate to converge towards its neutral level. However, the prospect of a higher neutral rate estimate means that this may only equate to one or two further 25bp cuts in the coming quarters.
