Chile Holds Key Interest Rate Amid External Risks

Chile’s central bank kept its benchmark interest rate unchanged at 4.5% at its October 2026 meeting, citing geopolitical tensions, tighter international financial conditions, and rising global inflation risks. The Board noted that escalating tensions in the Middle East had worsened the outlook for energy prices. Meanwhile, an unusually intense El Niño phenomenon had begun to affect international food prices, adding to cost pressures from energy, transportation, and fertilizers associated with armed conflicts. Copper prices, however, remained near the levels recorded at the previous meeting. Against this backdrop, concerns about global inflation continued to mount. Policymakers also highlighted tighter international financial conditions amid expectations of a more restrictive monetary policy stance, falling equity markets, a stronger US dollar, and rising long-term interest rates. The Board left the future path of monetary policy open.

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.