Interest Rate in Chile

Chile Interest Rate

Central Bank slashes rates in July

At its 28 July meeting, the board of the Central Bank of Chile (BCCh) decided to cut the monetary policy rate to 10.25% from 11.25%, a larger cut than markets were expecting.

The decision was driven by both headline and core inflation falling faster than the Bank expected in June. Moreover, two-year market inflation expectations sit at the Central Bank’s 3.0% target, and the economy is losing steam, providing the leeway to cut rates.

Forward guidance was dovish, with the Bank stating that the policy rate “will accumulate a somewhat stronger reduction than was considered in the [June] Monetary Policy Report’s central scenario”. The Consensus is for another large rate cut at the Bank’s next meeting in late-September, with over 200 basis points of additional loosening penciled in by year-end. Our analysts are likely to revise down their forecasts for the end-2023 policy rate ahead in light of the July meeting.

On the outlook, Itau Unibanco analysts said:

“The communiqué explicitly states that cuts in the short term should be of a similar magnitude as recent surveys […] In this context, we expect the yearend rate to come in well below the 8.75% signaled in the June minutes, and closer to the 7% floor of the IPoM’s corridor.”

Goldman Sachs analysts take a similar stance:

“The decision conveys the signal of a significantly more dovish inclination […] Risks to our previous 8.50% end-of-year policy rate are undoubtedly one sided and could see the 8.25%-7.75% range as plausible.”