Chile Central Bank Holds Key Rate at 4.5%

Chile’s central bank unanimously kept its benchmark interest rate unchanged at 4.5% in September, citing heightened uncertainty from the Middle East conflict, rising oil prices and persistent global inflation risks. Oil has approached $100 a barrel, while copper prices climbed above $6.50 a pound. Domestically, economic activity remained weaker than expected in the second quarter and early third quarter, accompanied by slowing domestic demand, job losses and a higher unemployment rate. Headline inflation rose to 4.1% in August, driven by volatile components, while core inflation held at 3.3%. Inflation expectations remain anchored at 3% over two years. The central bank said monetary policy would continue to be assessed meeting by meeting, with risks from the conflict and the possibility of a more prolonged domestic slowdown requiring close monitoring.

The Central Bank of Chile kept its benchmark interest rate unchanged at 4.5% in a unanimous decision at its July meeting, holding borrowing costs for a fifth straight meeting, as widely expected. Policymakers said the macroeconomic outlook remains subject to greater-than-usual uncertainty as renewed US-Iran fighting pushed oil prices back to $100 per barrel and clouded the outlook for global supply. Domestically, economic activity weakened more than expected, with May's Imacec falling 0.9% year-on-year while investment and labor market conditions softened. Meanwhile, annual inflation accelerated to 4.3% in June, slightly above forecasts, as core inflation rose faster than expected and short-term inflation expectations increased alongside higher oil prices. However, inflation expectations two years ahead remained anchored at 3%. The board reiterated that it will assess policy meeting by meeting and take the measures needed to return inflation to its 3% target over a two-year horizon.

The Central Bank of Chile kept its benchmark interest rate unchanged at 4.5% at its June meeting. Policymakers noted that the balance of risks to inflation has become more even, although the macroeconomic outlook remains subject to elevated uncertainty. The conflict in the Middle East remains unresolved, and global oil supply has yet to normalize. At the same time, while economic activity has been affected mainly by temporary supply factors and demand prospects have changed little, several drivers of household consumption have evolved less favorably. As expected, headline inflation accelerated due to the shock from the Middle East conflict. Annual consumer price inflation rose to 3.9% in May, largely driven by higher fuel prices. However, core inflation has shown little change in recent months. The board reiterated that it will take the necessary measures to ensure inflation converges to its 3% target over a two-year horizon.