Chile’s Central Bank Holds Rates Steady but Reveals It Nearly Cut

Key Points

• Chile’s Central Bank unanimously held rates at 4.5% in January but minutes reveal a 25-basis-point cut was seriously considered
• Inflation has fallen faster than expected to 3.4%, with the 3% target now expected by early 2026
• Markets anticipate a rate cut in March, just weeks after President-elect José Antonio Kast takes office

Chile’s monetary authorities faced a genuine dilemma at their January meeting, newly released minutes show.

The five-member board led by President Rosanna Costa debated whether economic conditions justified an immediate rate cut before ultimately prioritizing market predictability.

The decision hinged on communication strategy rather than economic fundamentals. Board members acknowledged that with inflation near target, the output gap effectively closed, and no significant price risks ahead, conditions supported moving toward the neutral rate of 4.25%.

However, surprising markets after signaling stability could have triggered unnecessary volatility. The economic backdrop appears increasingly favorable.

Inflation dropped from nearly 4% in August to 3.4% by November, outpacing September projections. GDP grew 2.4% in 2025, with investment surging 7%, particularly in mining and energy.

Copper prices exceeding $5 per pound have boosted government revenues and strengthened the peso. These figures have fueled competing political narratives ahead of March’s presidential transition.

Left-leaning voices point to the Central Bank‘s own data as evidence that claims of economic collapse are exaggerated—inflation is controlled, growth is steady, and fundamentals remain sound.

Conservative analysts counter that Chile’s potential remains constrained by regulatory burdens and weak non-mining investment, issues they expect incoming President Kast to address through spending cuts and deregulation.

Global conditions have provided tailwinds. The U.S. Federal Reserve‘s December rate cut, rising stock markets worldwide, and strong demand from trading partners have improved Chile’s external environment.

Yet risks persist from geopolitical tensions, potential trade disruptions, and questions about technology sector valuations.

Nearly two-thirds of market participants now expect a cut in March, which would mark the fourteenth reduction since rates peaked at 11.25% in 2023.

The Central Bank emphasized it will assess macroeconomic developments flexibly while ensuring inflation remains anchored at 3% over its two-year policy horizon.

Related coverage: Brazil’s Morning Call | Chile Markets Consolidate Near Record Highs as Peso Strength This is part of The Rio Times’ daily coverage of Chile affairs and Latin American financial news.

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