Central Bank of Chile cuts rates in July

Latest bank decision: At its meeting ending on 29 July, the Central Bank of Chile decided to cut the monetary policy interest rate from 5.00% to 4.75%, taking total cuts to 650 basis points since mid-2023.

Under-control prices drive cut: The Central Bank likely decided to continue its easing cycle due to the persistent decline in headline inflation so far this year—for the month of June in particular, the Bank commented that inflation was lower than expected. Moreover, core inflation has been within the Bank’s 2.0–4.0% target range since February, which together with rising unemployment likely provided further motivation for the Bank to ease its stance.

Further cuts likely: The Central Bank hinted at more rate cuts going forward. Most of our panelists see room for further mild monetary easing by end-2025, given inflation should fall later in the year as the economy metabolizes past electricity tariff hikes. However, some panelists see rates on hold for the rest of the year.

Panelist insight: Itaú Unibanco analysts commented on the outlook: “The macroeconomic scenario is consistent with additional cuts over the coming quarters towards the nominal neutral rate of 4%. Inflationary pressures have moderated at the margin, inflation expectations over the relevant horizon are anchored, while the weakness of the labor market and credit dynamics suggest that the economy should accumulate some negative slack.” EIU analysts said: “BCCh will ease its policy rate to 4.5% by end-2025, from its current level of 5%, driven by ongoing disinflation following the end of utility price adjustments and the central bank’s aim of supporting economic growth.”

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