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Chile | Cut in MPR to 2.5% and neutral bias

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It had to happen. The Central Bank has cut the MPR (Monetary Policy Rate) by 25bp and modified its bias to a neutral one. It would be consistent with the macro scenario of the CB to cut the rate despite the fact that consensus and all the surveys were inclined – incorrectly, from our point of view – to maintain it.

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  • Does that mean the cuts are finished with? For now we foresee no more movements for at least two or three months. We expect the Monetary Policy Report to be revealed at the beginning of June to shed light on the time that the Board estimates the MPR will remain at 2.5%. It cannot be ruled out that even with disappointments in activity/inflation, the CB would prefer to keep the MPR at 2.5% for a longer time instead of continue cutting. It is a scenario that cannot be ruled out, since the Board has shown itself to be comfortable with the level of the real MPR in a historical perspective and in comparison with other economies. For now, we insist that we see no value in the short part of the curve.
  • What is required in order to continue cutting the MPR? Certainly some time to check whether activity/employment/inflation are shown to be better than the Central Bank and BBVA Research anticipates (wait and see for at least 2 meetings). If we see consecutive disappointments in the coming months, the first reaction we expect is a message about keeping the MPR at 2.5% for longer, and then assessments of new cuts that this time would occur without modifying the bias. If additional cuts are to come, it would be with a neutral bias, since we estimate that the additional dose of monetary stimulus would be limited.
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