Chronicle of a rate cut foretold

The start of the year has been very positive for investments, especially risk assets, which practically erase the sharp global declines of 2022. A different reality is faced by Chilean fixed income which, on average, barely reaches 2% over 6 months this year. Unlike time deposits, longer-dated bonds have been hit by the widespread rise in rates and by inflation that—fortunately—is decelerating and delivering more moderate accruals.

In the second half, the reality could change. The Central Bank would begin its rate-cutting cycle this week with at least 75bp of cuts, a trend that should continue in the near future. Many are betting on taking active positions to benefit from these movements. However, so as not to draw the wrong conclusions, the market already prices in an aggressive monetary-normalization path and, therefore, only to the extent that there are surprises will we see returns above “normal” in market subsegments.

Diversified exposure in accordance with each investor's objectives and constraints remains the best strategy to achieve good results. A rate cut alone should surprise no one.

This column was originally published in El Mercurio Inversiones [LINK] on 25–07–2023