Chile Poised for Smaller Rate Cut

Chile’s central bank is expected to make a 25bp cut to its monetary policy rate on May 7, leaving it at 1.50%. This would be less than the 50bp chopped off in April and the 250bp cut made in March. Morgan Stanley says that “although the choice between 25bp and 50bp is likely to be close, we think the central bank will choose the former due to the recent steepening in the curve and as signs of stabilization in economic activity have started to surface.” Bulltick expects the rate to end the year at 1.25%, but sees an increased likelihood of a drop to 1.00%.Celfin Capital, which also forecasts a 25bp cut, recently chopped its forecast for Chilean GDP growth to 0.3% from 1.4%. It maintains its estimate of 4.0% expansion in 2010. And Goldman Sachs says Chile will cut the policy rate by another 25bp/50bp on Thursday; to 1.25%-1.50%. “At this juncture, a 25bp rate cut seems more plausible than another 50bp rate cut. The MPC could also communicate the intention to keep the policy rate low for a considerable period of time and we do not rule out other policy initiatives aiming to flatten the yield curve,” it adds.