Chile Monetary Policy Rate (%, eop)

Policy Interest Rate in Chile

Central Bank stays put in May

At its 12 May meeting, the board of the Central Bank of Chile (BCCh) decided to leave the monetary policy rate at 11.25% for the fourth straight meeting, following aggressive rate hikes last year.

The decision not to hike further was motivated by declining headline and core inflation. In contrast, it was premature to begin cutting rates given that inflation is still more than triple the Central Bank’s 3.0% target, and that two-year inflation expectations were also above target. The BCCh commented that recent inflation and economic activity data had evolved as expected in March’s Monetary Policy Report.

The Bank stated that it planned to keep rates at 11.25% until inflation was trending clearly down towards the target. The vast majority of our analysts expect monetary easing to begin in Q3, although a few panelists see rate cuts in June. Moreover, there is a notable discrepancy over the pace of easing, with a 250 basis-point spread among end-2023 policy rate forecasts.

Itau Unibanco analysts are towards the hawkish end of our panel:

“We expect the beginning of the easing cycle to occur in July and consider a cautious easing pace that results in a year-end rate of 9.25%. Nevertheless, as inflation remains elevated, persistent core inflation leading up to the July policy meeting, could lead to a further delay in rate cuts.”

In contrast, Scotiabank analysts are more dovish:

“We recognize that the BCCh has maintained a hawkish view and will likely keep the benchmark rate at its current level until it sees downside surprises in CPI inflation prints, as well as 2-year inflation expectations decreasing to 3%. We therefore revise up our forecast for the benchmark rate to 7.5% through December 2023.”