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Chile Monetary Policy September 2022

Chile: Central Bank hikes rates by a massive 100 basis points in September

At its 6 September meeting, the board of the Central Bank of Chile (BCCh) decided to increase the monetary policy rate from 9.75% to 10.75%, taking total tightening this year to 675 basis points. The decision was not unanimous: One board member voted for a 125 basis-point hike, while another preferred a 75 point hike.

The Bank’s decision was chiefly driven by the desire to control surging inflation, which came in above expectations in August and reached a multi-decade high. Core inflation also rose in the month. Moreover, the Bank commented that market inflation expectations had risen, and were above the 3.0% target over a two-year time horizon.

The Bank changed its forward guidance: At the previous meeting in July, the BCCh explicitly mentioned that it would hike rates going forward, whereas in September it stated that future rate moves would depend on the evolution of economic data. The Bank also stated that “the MPR is at the maximum level considered in the central scenario of the September Monetary Policy Report”. Despite this, our analysts still see extra rate hikes by the end of the year to aid the convergence of inflation to target. Interest rates are then seen declining next year in line with lower price pressures.

Summing up the Bank’s stance, analysts at Goldman Sachs said:

“The September Monetary Policy Report (IPoM) shows that the consensus-beating 100bp policy rate hike at the September meeting underlined a preference from the monetary authority to frontload rate hikes while adopting a dovish forward guidance inasmuch they moved from anticipating additional hikes to adopting a neutral/data-dependent bias. Nevertheless, both the IPoM and the fact that one policy committee (MPC) member voted for a more forceful 125bp increase in the last meeting signal that the Board is open to additional hikes should incoming data suggest a deterioration of the inflation backdrop.”

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