Chile keeps interest rate at 11.25 % to contain inflation

The Central Bank of Chile agreed to maintain the monetary policy interest rate (TPM) at 11.25 percent yesterday, Friday.

At the same time, underlying inflation remains high in the South American country, and global growth prospects remain weak, the entity informed.

The monetary regulator said in a statement that inflation “has fallen in several economies.”

“However, underlying indicators remain high, pointing to the risks surrounding their convergence”.

With this, it argued that the leading central banks raised their reference rates again while “global growth prospects for this year remain weak”.

On the external front, the agency pointed out that financial conditions have not shown significant changes in the last month, so uncertainty remains high.

The Central Bank highlighted fears about the performance of the world economy and, in the developed world, the potential vulnerabilities of some banks and the evolution of credit.

In this context, it added that “currencies have appreciated against the dollar and stock markets have risen slightly”, and long-term interest rates “have shown limited increases in developed economies and decreases in emerging ones”.

According to the figures released by the Central Bank, the prices of raw materials have recently decreased by around 8 percent for oil and 5.5 percent for copper, Chile’s main export product.

On the other hand, at the local level, “the nominal exchange rate is at somewhat lower levels than those of the last meeting” of the monetary policy of the previous month.

Meanwhile, long-term interest rates are somewhat higher, and bank credit continues to be limited.

Overall, the preliminary closing of activity for the first quarter shows that the economy’s performance was in line with the forecasts made last March, despite the “poor performance” of the mining sector.

On the demand side, indicators linked to consumption have adjusted downwards, while those of investment ratify their weakness.

As for employment, the rate increased to 8.8 percent in the mobile quarter ending in March, given the reduction in empoyment and the increase in the labor force, while real wages “continue to recover”, said the Central Bank.

The Central Bank argued that “the perception of the economy by companies and households continues to be pessimistic”.

For the reasons above, the Central Bank of the country resolved today to maintain the TPM at 11.25 percent until the macroeconomy indicates that the convergence of inflation to the 3 percent target has been consolidated.

Chile’s monetary agency stagnated this figure last December after eleven consecutive hikes.

The TPM is a tool to halt inflation levels by cutting monetary stimulus.

Its elevation means that it will be more expensive to get into debt in the country, in addition to slowing the growth of some sectors, such as real estate, hit by rising inflation.

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