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Chile Monetary Policy December 2021

Chile: Central Bank implements a further aggressive rate hike in December; forward guidance grows more hawkish

At its 14 December meeting, the board of the Central Bank of Chile decided to hike the monetary policy rate by 125 basis points to 4.00%. The move followed a hike of the same size in October, and means rates have now risen by 350 basis points so far this year.

The Bank’s move was well signposted at its last meeting, and was driven by a desire to keep inflation and inflation expectations in check. Inflation rose to an over-decade high in November, spurred by elevated international commodity prices and strong domestic demand. Moreover, the Bank highlighted that inflation expectations have risen in recent months, and are now above the 3.0% target over a two-year horizon.

The Central Bank sounded an even more hawkish tone than at its prior meeting, noting that the policy rate is now expected to exceed its neutral rate (the rate consistent with 3.0% inflation) over the forecast horizon. In the previous meeting, the Bank spoke of tightening policy in order to reach the neutral rate. As such, rates are set to rise further next year.

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