Rio de Janeiro, Brazil Rio de Janeiro, Brazil Rio de Janeiro, Brazil

Macro Insights: Chile kickstarts the EM easing cycle

Macro 5 minutes to read
Charu Chanana

Market Strategist

Summary:  Chile announced a larger-than-expected rate cut, and is the first emerging market (EM) to jump on the easing bandwagon in the current cycle. The move could be a catalyst to kickstart a broader EM easing cycle, as they went early into the tightening cycles and brought inflation under control. Brazilian central bank meets on Wednesday and may follow suit, with more to follow in Latin America and Emerging Europe, while Emerging Asia may lag due to less aggressive rate hikes limiting the room. This could make EM equities and local currency bonds attractive.

The Board of the Central Bank of Chile decided to cut the monetary policy interest rate by 100bps to 10.25%. The decision was unanimous and considered dovish compared to expectations of a 75bps rate cut. Inflation has been falling faster than expected, while growth has held up in-line with the forecasts made at the June meeting. This provided ammunition to Chile’s central bank to be the first-mover and kickstart a rate-cut cycle to reverse the massive rate hikes it had to undertake during the pandemic which brought the interest rates from just 0.2% in mid-2021 to 11.25% in late 2022. The central bank has been on hold since then, potentially waiting for the Fed to give a clear pause signal, which happened at the July FOMC meeting where a clear data-dependent approach was adopted while not committing to any further rate hikes.

Other emerging markets could get a signal

The move from Chile’s central bank is likely to signal the start of a broad emerging market (EM) easing cycle, with Brazil set to follow suit this week as it meets on Wednesday and Peru, Mexico and Columbia also set to follow suit. Brazil’s Selic rate is currently at 13.75%, having rise from a low of 2% at end-2020. Brazil’s rate hike cycle has been the steepest globally, providing the most room for easing over the next two years. Meanwhile, inflation has dropped to 3.2% YoY in July from a peak of over 12% YoY last year.

Figure 1: Brazil’s current policy rate is above the rate suggested by Taylor-rule. Source: Bloomberg, Saxo

Some countries in EM Europe such as Czech Republic, Hungary and Poland have also been on pause longer-than-average and could take a signal from Chile’s announcements. Emerging markets in Asia could lag in the current rate cut cycle as their tightening moves were less aggressive in the current cycle with inflation pressures remaining less concerning. Still, India, South Korea and Indonesia could consider cutting rates by the end of the year if inflation continues to slow.

Where are the opportunities?

The start of the easing cycle in emerging markets could support EM financial markets, adding to recent gains in local currency bonds and brightening the outlook for EM equities further ahead. Local currency bonds in Latin America may be preferred over other emerging markets as central banks in the region have most room to cut rates. LatAm currencies have also posted strong gains this year as investors took advantage of the carry trade opportunity.

Figure 2: FX spot returns against USD year-to-date. Source: Bloomberg

While the carry may still remain attractive due to the interest-rate spread and a weakening dollar trend, there may be reasons to be cautious given high valuations and the turning rate cycles which, if aggressive, can lead to capital flight.

Risks to the view

A slowing inflation outlook is the key to EM rate cut cycles getting started. An inflation shock, from either climate change or geopolitical tensions, could upend the inflation trajectory. Recession risks in US and Europe, along with a slowing China economy, also presents risks to the scope of improvement in economic activity that can be driven by the rate cut cycle. Another risk is that markets have already priced in the easing across emerging markets and valuations may be unattractive. Carry trades also remain at risk with Bank of Japan showing flexibility on its monetary policy, given Japanese yen has been a key funding currency that helped power BRL and MXN. This could limit the pace of the easing cycle by EMs as they do not want to disrupt the carry trade advantage.


The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (
- Full disclaimer (

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.