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Chile Monetary Policy January 2023

Chile: Central Bank stays put in January

At its 26 January meeting, the board of the Central Bank of Chile (BCCh) decided to leave the monetary policy rate at 11.25% for the second straight meeting, following aggressive rate hikes last year.

The Bank’s decision not to hike further was likely driven by a desire to support the economy, and by the belief that the 725 basis points of tightening in 2022 was sufficient to tame price pressures. The BCCh commented that “monetary policy has made significant adjustment and is facilitating the resolution of the imbalances present in the economy”. On the flipside, rate cuts were premature given still double-digit inflation and inflation expectations above the 3% target.

In its forward guidance, the Bank stated it would keep the policy rate at 11.25% until it was clear that inflation was converging to target. Most analysts see the BCCh beginning to cut rates from Q2, although there is a notable discrepancy over the pace of monetary easing, with a 475 basis-point spread among end-2023 forecasts.

Giving their outlook, analysts at Itau Unibanco said:

“We expect the Central Bank to wait until mid-year (when inflation is expected to be within single-digit terrain) before starting an easing cycle that would take the policy rate to 7% by year end, with further cuts into 2024.”

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