Chile Monetary Policy October 2022


Chile: Central Bank hikes in October; signals end of tightening cycle

October 13, 2022

At its mid-October meeting, the board of the Central Bank of Chile (BCCh) decided to increase the monetary policy rate from 10.75% to 11.25%, taking total tightening this year to 725 basis points.

The Bank’s decision was chiefly driven by the desire to tame headline and core inflation—both are in double digits—as well as control inflation expectations. The BCCh commented that two-year inflation expectations were still above the 3.0% target. Supporting the peso, which remains historically weak at well over CLP 900 per USD, was likely an additional motivation.

In its forward guidance, the Bank stated that the policy rate had reached its maximum level of this tightening cycle and would remain at its current level for “as long as necessary” to reduce inflation. Our panelists see interest rates at their current level in Q4 before declining next year as price pressures recede.

On the outlook, analysts at Itau Unibanco said:

“The opportunity to cut rates will likely only materialize during 2H23, once the domestic demand downturn and normalized global supply conditions consolidate a downward trend for inflation and inflation expectations. We see rates at a still contractionary 6.5% by the end of next year.”

Goldman Sachs’ Sergio Armella held a similar view:

“We believe that sticky domestic and global inflation, higher global core yields, hawkish global monetary winds, a positive output gap, high cost pressures, lingering household liquidity, and still significant domestic policy and political uncertainty warrant a clearly restrictive stance. Consequently, in our view the MPC will be patient and hold the policy rate at the currently restrictive monetary stance for a while and expect the MPC to wait until late-2Q2023, possibly 3Q2023, to start to cut rates.”

Our panelists are taking the Bank’s latest move into account, with a new Consensus to be published in early November.


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