Chile’s c.bank seen restarting rate cuts as economy see-saws – poll

Chile’s central bank is poised to resume its monetary easing cycle with a quarter-point interest rate cut on Tuesday. This move aims to stimulate the economy following a weak second-quarter performance.

Seventeen of 20 analysts in a Bloomberg survey expect policymakers led by Governor of the Central Bank of Chile Rosanna María to lower the benchmark interest rate to 5.5 per cent after the market closes later the day. Three others anticipate rates to be left on hold for the second straight meeting.

The decision comes as analysts project inflation to reach the target within two years, and recent data shows local demand remains uncertain. Chile’s gross domestic product (GDP) shrank for the first time in a year in the second quarter of 2024 before activity rebounded in July. The central bank will remain vigilant about the impact of electricity tariff hikes on economy, temporarily driving consumer price rises further above the 3 per cent goal.

The central bank’s rate decision and accompanying statement will be released on Tuesday evening. Investors will closely watch the statement for comments on electricity tariff increases and their impact on inflation. While the central bank will provide detailed forecasts in its monetary policy report on Wednesday, markets will seek confirmation of the temporary nature of the electricity hike’s effects.

“We expect Chile’s central bank to hold its benchmark rate at 5.75 per cent for a second consecutive meeting. Forward guidance is likely to reiterate there’s little room for additional cuts this year, while keeping the door open for more accommodation next year, depending on new data. Accelerating inflation and rising short-term inflation expectations are risks. Pressure is supposed to be transitory, but uncertainty about the outlook is high and supports caution.” Felipe Hernandez, Latin America economist, said.

Attribution: Bloomberg