(Bloomberg) -- Chilean swap rates are likely to rise further this week after the central bank played down the prospect of an April interest rate cut that the market had all but taken for granted.

Bank President Rosanna Costa told Bloomberg late Thursday that inflation remains “extraordinarily high” and that policymakers needed more time to ensure it was slowing to the target before starting to ease policy. Earlier that day the central bank left the key rate at a two-decade high.

While the rate decision was predicted by analysts, the comments caught the market by surprise as many expected a more dovish tone. Swap rates leaped Friday on the news and are likely to increase further this week, said Alexis Vega, head of market making at Banco de Credito e Inversiones in Santiago. Some analysts now forecast the start of rate cuts in May rather than April.

“It’s likely that we see greater adjustment in swap rates this week,” Vega said. “Upcoming moves in the local fixed income market should better capture the fact that the central bank apparently has no intention of cutting rates in April.” 

One-year swap rates rose 20 basis points to 9.45% on Friday, the biggest increase since Dec. 7, while the two-year rate climbed 16 basis points to 7.21%

Hold On

Policymakers voted unanimously to keep rates at 11.25% for the second straight meeting on Thursday. The board reiterated that inflation’s convergence to the 3% target remains subject to risks, with most analysts forecasting it won’t happen within the two-year horizon used by the central bank.

“Local rates in the shorter-end of the curve were pricing in big chances of a significant rate cut in April right before the central bank’s statement came out,” said Martina Ogaz, an economist at Euroamerica. “We learned that no cut is guaranteed.”

In fact, the forward guidance in Thursday’s statement was identical to that at the previous central bank meeting, even after inflation slowed to 12.8% in December from 13.3% the month before. 

It “certainly wasn’t as dovish as most market participants were expecting,” Andres Pardo, chief Latam strategist at XP Investments, wrote in a note. “The bank’s statement signals that the start of the easing cycle may have to wait a bit longer.”

Still, the market is pricing in a benchmark rate of just over 6% in a year’s time. The question is, when will policy easing begin.

“We move our estimate of the first rate cut to May, from April, because by that date there will be enough evidence that the process of easing inflation has consolidated and that the economy is in recession,” Sergio Godoy, chief economist at STF Capital, wrote in a report.

A delay in rate cuts is likely to consolidate the peso at current levels or even stronger, according to Euroamerica’s Ogaz. The local currency has appreciated 9% since the prior policy meeting in December. 

“The cost of erring in the assessment of inflationary deceleration is much higher than the cost of postponing the easing cycle a few months,” said Samuel Carrasco, senior economist at Credicorp Capital. 



  • Jan. 30: Dec. Unemployment rate
  • Jan. 31: Dec. Manufacturing, industrial production
  • Jan. 31: Dec. Copper production
  • Jan. 31: Dec. Retail sales
  • Feb. 1: Dec. Economic activity


  • U.S.:
    • Jan. 31: Jan. Conf. board consumer confidence
    • Feb. 1: S&P Global manufacturing PMI
    • Feb. 1: Jan. ISM manufacturing
    • Feb. 1: FOMC rate decision
    • Feb. 2: Dec. Factory orders
    • Feb. 2: Dec. Durable goods orders
    • Feb. 3: Jan. Unemployment rate
  • China:
    • Jan. 30: Jan. Manufacturing PMI
    • Jan. 31: Jan. Caixin PMI Mfg
  • Eurozone:
    • Jan. 31: 4Q GDP
    • Feb. 1: Jan. S&P Global manufacturing PMI
    • Feb. 2: ECB rate decision


  • Copper Declines as Traders Book Profit Before China Returns
  • Chile Swap Rates Rise Further as Costa Signals Caution on Policy
  • Chile Keeps Rates at Two-Decade High, Retains Cautious Tone (2)
  • Chile’s GNL Quintero Upgraded to ‘A-’, Outlook Stable at Fitch
  • Lower Uncertainty is Helping Boost Chile’s Peso, Marcel Says
  • Chile Lower House Committee Approves Pension Reform Bill
  • Chile’s Boric Disapproval Rating Rises to 58%: DataInfluye Poll
  • Chile Lower House Approves Members of Constitution Committee (1)
  • Chile’s Lower House to Vote on Tax Bill After Recess: Marcel
  • Chile Lower House Cmte Passes Tax Reform; Bill Goes to Floor


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