Chile CB Unlikely To Loosen Policy In The Near Term

(RTTNews) - Chile's central bank is unlikely to loosen monetary policy over the next three to six months, as policymakers expect inflation to fall short of expectations in the short term, Neil Shearing, an economist at Capital Economics, said.

The Board of the Central Bank of Chile had decided to keep the monetary policy interest rate at 2.5 percent on November 14. The policy statement revealed that policymakers were not yet ready to rule out further easing in the near term.

Firstly, the Board acknowledged that inflation in October was "higher than expected" and it argued that this "only partially reversed the downside surprise in September.

"Second, in the view of the Board, the recent activity data have been "consistent" with September's Monetary Policy Report and the "monetary policy impulse" it was predicated upon," the economist observed.

Taken together, there is still a risk in the Board's view that inflation will "fall short of expectations in the short term" and that this could "require adjusting the policy rate".

Policymakers are not so worried about October's inflation surprise and the the market has now taken out the interest rate cuts that it had been pricing in for the first quarter of 2018, Shearing said.

Capital Economics still sees a good chance that the central bank will have to loosen again in this cycle.

"We are sticking to our long-held view that the Board will deliver two additional 25bp cuts in Q1, taking the policy rate to 2.00 percent," Shearing said.