Chile's MPC minutes reveal no end to easing cycle

The minutes of the December monetary policy committee meeting of Chile's central bank have revealed the decision to leave rates unchanged was a unanimous one with the bank choosing to wait and see what impact previous cuts will have before considering further moves.

The MPC left the policy rate unchanged at 4.50% at December's meeting following a short cycle of two consecutive 25bp rate cuts, with one member arguing that a "third consecutive reduction would send a message that would not be consistent with the economy's observed moderate slowdown."

According to the minutes, another board member noted that three cuts in a row "could be wrongly construed as a sign of concern on the board's part over the pace of the domestic demand's adjustment."

A note to clients from Goldman Sachs reiterated the view that the previous two cuts "should be viewed as part of a contained easing cycle to facilitate the adjustment of the economy to a lower growth environment driven chiefly by the loss of momentum of mining investment."

"The decision to pause the cycle in December corroborates our view that directors would likely want to buy some time to better assess the growth-inflation outlook before delivering additional monetary accommodation," added Goldman Sachs analyst Alberto Ramos.

The minutes from the bank pointed out that while the recent depreciation of the peso could imply higher inflation going forward, "it was a temporary phenomenon that had not affected medium-term expectations."

While backing the central bank's cautious approach, warranted by a surprising jump in the November CPI and the prospect of further increases in headline and core inflation over the coming months, Alberto Ramos added, "we continue to believe there is a better than even possibility that the MPC will cut the policy rate by another 25bp during 1Q14."