Chile’s Central Bank retains interest rate at 11.25% to curb inflation

Chile’s Central Bank has decided to keep the monetary policy interest rate (MPR) at 11.25% through a split vote, as underlying inflation in the South American country decreases slowly, and global growth forecasts remain subdued, according to the institution’s report.

In a statement released yesterday, the monetary authority noted that while global inflation has continued to decline, the underlying inflation has done so more slowly.

Despite better global activity data in the first quarter, the institution stated that “global growth prospects for this year and the next remain subdued.”

Externally, the bank noted that financial conditions are expected to remain tight, uncertainty is likely to stay elevated, and more restrictive monetary policies are anticipated in the major economies to tackle inflation.

The Central Bank highlighted mixed movements in global financial markets, with long-term interest rates showing limited increases in developed countries, in contrast to decreases observed in emerging economies.

The institution also noted that stock markets traded higher recently while commodity prices varied.

According to figures released by the Central Bank, the price of copper, Chile’s main export, has been volatile and is around 3.8 dollars per pound.

Domestically, financial market movements have aligned with expectations that monetary policy will gradually become less restrictive.

The bank emphasized that short-term rates have fallen significantly, with a more limited decline for long-term rates and bank credit.

Despite this, the first quarter’s activity reflects an evolution in line with expectations, even with the mining sector’s “poorer performance” from the supply side.

On the expenditure side, the main difference was concentrated in private consumption, with a significant drop in its durable, primarily imported, component.

Regarding employment, the labor market has shown less dynamism, and the unemployment rate reached 8.7% in the moving quarter that ended in April, in a scenario of “pessimism” about the economy among businesses and households.

For these reasons, Chile’s Central Bank decided to keep the “contractive” MPR at 11.25%, a rate adopted last December after eleven consecutive increases.

The decision was accepted with three votes in favor and two against.

This action “has significantly contributed to the decrease in inflation,” which was at 8.7% annually in May,

“While risks around this persist, they have been balancing,” detailed the regulatory body.

If this trend continues, the Central Bank added, the MPR “will begin a reduction process in the short term,” the magnitude and timing of which will respond to the evolution of the macroeconomic scenario and its implications.

The MPR is a tool used to curb inflation levels by cutting monetary stimulus, and its increase means borrowing will be more expensive in the country.

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