Chile’s central bank kept its key interest rate steady at 5 percent, choosing a cautious approach amid growing global instability, especially due to the conflict in the Middle East. However, the bank indicated it may cut rates in the future if external risks stay under control, according to Bloomberg.
The decision, announced late Tuesday, met market expectations. Sixteen out of 21 analysts surveyed by Bloomberg predicted the rate hold, while five expected a 0.25 percentage point cut. This marks the third consecutive meeting without a rate change following earlier aggressive monetary tightening.
In a statement cited by Bloomberg, Governor Rosanna Costa and the central bank’s board said inflation pressures have eased, and risks to prices have diminished. Still, they warned that the Israel-Iran conflict adds “a new source of uncertainty” that could affect Chile’s economy, particularly through rising energy costs.
“The escalation of the military conflict in the Middle East adds further uncertainty to this scenario,” the bank said. “Its scope, development, and potential impacts on the global and local economies are unknown.”
If the bank’s main forecast holds, the policy rate will soon approach a neutral range estimated between 3.5 and 4.5 percent, the statement said.
Chile’s annual inflation slowed to 4.4 percent in May, the lowest since November 2023, easing from pandemic-era highs, Bloomberg reported. A stronger peso, up over 5 percent this year, has helped ease import-driven price pressures—important for a country dependent on imported fuel.
However, rising oil prices caused by Middle East tensions could threaten this progress. “We expect the easing cycle to resume in July, but fluctuations in external conditions might delay rate cuts until September,” said Andres Perez, Chief Economist for Latin America at Banco Itau, as quoted by Bloomberg.
Perez predicts the rate easing cycle will end at 4 percent by early 2026.
Chile’s economy grew 0.6 percent month-on-month in April, three times faster than analysts had forecast, according to Bloomberg. Growth was led by mining and services sectors, while inflation continued to cool. Despite this, job creation remained weak, the central bank noted.
“There are signs pointing to stronger investment in the near future,” the board said, but added the labor market “shows slow job creation.”
The Chilean government expects GDP growth of about 2.5 percent this year. The central bank is set to release updated economic forecasts in its Quarterly Monetary Policy Report on Wednesday.
The tone of the latest statement suggests more rate cuts may be coming. “The Central Bank of Chile is becoming clearer about future rate cuts in the coming quarters,” said Florencia Ricci, Head of Economy and Markets at Banchile Inversiones, according to Bloomberg.
Ricci expects two rate cuts this year, in the third and fourth quarters, lowering the benchmark rate to 4.5 percent by the end of 2025.
Though rates remain unchanged for now, Chile’s central bank signaled readiness to ease monetary policy again if external shocks like the Middle East conflict stay contained. For the moment, caution guides Santiago as it watches global developments closely.
