- Chile: 25bps cut in policy rate with clear neutral bias
The policy rate now sits within the neutral range, and the next cut in January is far from assured.
The Central Bank delivered a 25bps cut, bringing the policy rate to 4.50%, a move broadly consistent with recent core inflation surprises amid economic activity that has evolved in line with expectations. Annual inflation is projected to reach 3% by January 2026, while the economy grows near its potential with the output gap closed. This scenario, marking the start of 2026, aligns with positioning the policy rate at its neutral level and waiting for potential external or domestic risks that could significantly pull inflation away from the 3% target. Despite this, we at Scotiabank still expect another 25bps cut. However, after the BCCh’s statement, we are less convinced it will occur in January and see March as a more likely option. We look forward to the new rate corridor to be unveiled in the December Monetary Policy Report (IPoM) to assess whether the Central Bank shares our view.
External risks to inflation and activity mainly stem from the possibility that various shocks could trigger a reduction in risk appetite, corrections in asset valuations, and decompression of risk premia, including the term premium on US sovereign debt.
The main domestic upside risk for inflation, following the presidential election, is that the economy shows a faster-than-expected recovery (our baseline GDP growth forecast for 2026 is 2.5%), driven by accelerations in consumption and investment. This risk has gained traction recently amid a significant improvement in terms of trade, which has not yet led to the necessary peso appreciation to offset potential price pressures from stronger consumption growth and new substantial increases in labour costs (minimum wage and higher pension contributions).
—Aníbal Alarcón
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