Chile: Central Bank hikes rates further in July
At its 13 July meeting, the board of the Central Bank of Chile (CBC) decided to increase the monetary policy rate from 9.00% to 9.75% taking total tightening this year to 575 basis points. The decision to hike by 75 basis points was voted unanimously and was above expectations; most market analysts predicted a 50 basis-point hike.
The Bank’s decision was chiefly driven by the desire to control surging inflation —which was 12.5% in June, well above the 3.0% target. The CBC commented that market inflation expectations had also risen. Moreover, international monetary tightening, fears of a world recession and domestic political uncertainty led the peso to depreciate by over 20% since the last meeting on 8 June, giving further motives for an interest rate hike.
The Bank’s forward guidance grew more hawkish, with the Board estimating that “new increases in the MPR will be necessary” and dropping language about these increases being “smaller in magnitude” relative to past hikes. Our analysts currently expect around 75 basis points of additional tightening by year-end.