Chile’s Central Bank suggests interest rate hike cycle has ended

The Central Bank of Chile raised interest rates by half a percentage point yesterday, but said that, in all likelihood, this would be the last hike of this cycle as inflationary concerns are now being overshadowed by fears of recession.

The hike, in line with market expectations, brought Chile’s reference interest rate to 11.25 percent and was approved unanimously by the Central Bank’s board.

“The board estimates that the monetary policy rate has reached its maximum level in the cycle initiated in July 2021, and that it will stay at this value for the time necessary to ensure that inflation converges with the rates targeted by our policies,” Chile’s Central Bank said.

The board is targeting a drop in inflation to 3 percent over that time period, and admits that the latest readings have been higher than expectations. 

Chile’s inflation rate reached 13.7 percent yearly in August, but “underlying inflation” figures — which exclude energy prices and are used by the Central Bank as a policymaking reference — stood at 11.1 percent, just below the monetary authority’s benchmark rate.

This week, the International Monetary Fund (IMF) said it expected Chile to be the only country in the region to undergo recession in 2023, with GDP dropping by 1 percent in the Andean nation after decades of steady growth.

Countries with similar inflation readings in the region such as Colombia (11 percent) and Peru (7 percent) are still undergoing tightening cycles, although the government has called for lower rates in the former, while the latter’s monetary authority has suggested it could be close to ending its hikes. 

Brazil, meanwhile, has hiked rates more aggressively and experienced deflation over the last three months. Argentina moved closer to positive real rates following a change at the Economy Ministry and a bid to align policy with IMF recommendations.

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