What to Expect from the Monetary Policy Meeting

CHILE - In Brief 16 Dec 2024 by Igal Magendzo
For the Monetary Policy Meeting (RPM), I remain undecided regarding the decision (50/50 between -25pb and no cut). Arguments in favor of a 25bp cut: Macroeconomic analysis indicates that the Central Bank has plenty of room to continue reducing the Monetary Policy Rate (TPM). Market expectations are strongly aligned with a rate cut, and the Central Bank generally avoids surprising the market, particularly when expectations are strongly aligned. Arguments in favor of no cut: The Central Bank's tactical decisions throughout the current easing cycle have been more consistent with holding the rate in the next RPM. Since the last RPM, the exchange rate has depreciated by 5%, medium-term expectations for the Fed Funds rate have increased, 2-year TPM expectations from the Financial Traders Survey have risen, and inflation expectations for horizons beyond one year have also increased—particularly those implicit in market prices. Under these conditions, the Board feels more comfortable slowing the pace of cuts, which is consistent with actions taken in previous meetings following similar movements in these variables.

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