(Bloomberg) — Chile’s central bank cut its key interest rate by three quarters of a percentage point, speeding up the pace of monetary easing as a strengthening currency and improved global outlook alleviate inflation concerns.
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Policymakers led by Rosanna Costa voted unanimously to cut borrowing costs to 8.25% late on Tuesday, according to a statement accompanying today’s decision. Twelve of 20 analysts in a Bloomberg survey had forecast the move, while eight expected a second straight reduction of 50 basis points.
While saying “the convergence of inflation to the target will require further cuts” to rates, policymakers restated their “commitment to act with flexibility in the event that any of the internal or external risks materialize and macroeconomic conditions so require.”
The bank delivered a more aggressive rate cut after the peso appreciated over 8% since their prior meeting on Oct. 26, dragging down the cost of key imports including fuels. At the same time, economic activity fell in October, according to a central bank proxy for GDP, while the end of a push for a new constitution is providing relief in the near-term. Globally, falling US Treasury yields are supporting asset prices.
“Inflation expectations remain under control, external conditions have been relatively stable in recent weeks and the peso has rebounded since mid-October,” Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, wrote before the bank’s decision.
While annual inflation slowed less than expected in November, to 4.8%, it still hit the lowest level since August 2021, the national statistics agency reported earlier this month. The central bank sees cost-of-living increases at the 3% target next year.
Read more: Chile Inflation Exceeds All Forecasts Ahead of Rate Decision
Chile’s economy slipped 0.1% on the month in October amid a plunge in mining, according to the central bank. Still, commerce gained 1.6%, while services increased 0.6%, providing evidence that demand is stabilizing.
Analysts surveyed by Bloomberg see the nation’s GDP shrinking by 0.1% this year, joining Argentina and Peru in an economic contraction. Still, they see Chile’s growth next year hitting 2%, above the regional average.
The central bank will publish its latest economic forecasts in its quarterly monetary policy report early on Wednesday.
–With assistance from Giovanna Serafim.
(Updates with quote from central bank in the third paragraph.)
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