Central bank expected to lower benchmark rate to 4.75%
Chile’s central bank is widely anticipated to reduce its benchmark interest rate by 25 basis points to 4.75% at its upcoming monetary policy meeting on July 28, according to a poll of analysts released Thursday. The expected cut would continue the bank’s ongoing easing cycle aimed at supporting economic activity as inflation begins to moderate.
Traders and economists surveyed by the central bank project that the easing trend will persist through the end of the year, with the policy rate forecast to fall to 4.5% within the next five months. The gradual reduction reflects the central bank’s efforts to strike a balance between reviving growth and maintaining price stability.
Inflation remains a concern, but stabilizing
Consumer prices in Chile are expected to rise 0.6% in July compared to the previous month, according to the same survey. While still elevated, inflation has been trending downward in recent months, providing the central bank with room to maneuver on rates.
Annual inflation in Chile had surged to double digits in 2022, driven by global supply chain disruptions and domestic demand pressures. However, tighter monetary policy and a cooling economy have helped ease inflationary forces over the past year. The expected July figure suggests inflationary pressure remains, but not at levels that would derail further rate cuts.
Gradual easing likely to continue
The Chilean central bank has been cautious in its approach to monetary easing, aiming to support the recovery without reigniting inflation. The July 28 meeting is expected to deliver a modest rate cut, reflecting this measured stance. Analysts believe this incremental strategy will continue, with smaller adjustments likely over the coming months rather than aggressive policy shifts.
Market participants are closely watching global commodity prices and domestic fiscal policies, both of which could influence inflation and central bank decisions. Despite international uncertainty and the potential for external shocks, Chile’s current macroeconomic conditions suggest a steady path forward for monetary policy.
Implications for investors and businesses
A lower benchmark interest rate could provide relief for households and businesses facing high borrowing costs. Sectors such as construction, retail, and small enterprises, which are sensitive to credit conditions, may benefit from easier access to financing as rates decline.
For international investors, the central bank’s gradual and transparent easing path may reinforce confidence in Chile’s financial management, even amid external headwinds. However, persistent inflation and potential volatility in global markets remain key risks to monitor.