(Bloomberg) — Chile’s central bank cut its benchmark interest rate by a quarter-point, resuming its easing cycle as policymakers ride out a near-term inflation shock and give more support to economic growth.
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Policymakers cut borrowing costs to 5.5% late on Tuesday, as expected by 19 of 22 analysts in a Bloomberg survey. The other three forecast rates would be left unchanged for the second straight meeting.
Chile central bankers led by Rosanna Costa moved to relax monetary policy as growth in one of Latin America’s richest economies struggles to gain traction. Gross domestic product contracted for the first time in a year in the second quarter before activity rebounded in July. Still, board members remain cautious as they navigate an up-tick in inflation spurred in part by higher electricity tariffs.
“Some leading indicators, including confidence surveys and import growth, suggest a sub-par economic performance over the next few months,” Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, wrote in a note before the decision. “Further interest rate cuts are still needed.”
Gross domestic product shrank 0.6% in the April-June period compared to the preceding quarter as demand and mining fell. While activity gained more than analysts expected in July, the economy also recorded its biggest monthly loss of jobs since the pandemic.
Investors see consumer-price growth at the 3% goal in two years, which is the central bank’s time-frame for monetary policy. Still, the board has limited room for rate cuts at this point as annual inflation hit 4.6% in July and is expected to speed up even further.
Central bankers currently expect cost-of-living increases to ease back to their target at the start of 2026, though the monetary authority will publish updated forecasts in Wednesday’s quarterly monetary policy report.
–With assistance from Giovanna Serafim and Rafael Gayol.
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