Central Bank of Chile decreases rates in December

Latest bank decision: At its meeting on 17 December, the Central Bank of Chile decided to lower the monetary policy interest rate by 25 basis points to 5.00%. This took total monetary easing since mid-2023 to 625 basis points.

Monetary policy drivers: The key domestic factors influencing the Central Bank’s decision were likely weak bank lending, job creation and private consumption; core inflation within the Bank’s 2.0–4.0% target range; and well-anchored inflation expectations.

Policy outlook: The Bank struck a hawkish tone, highlighting that risks to the inflation outlook were skewed to the upside in the short term. However, our panelists still expect several more rate cuts in 2025 as the Bank aims to support the economy.

Panelist insight: Itaú Unibanco analysts commented on the outlook: “We interpret the decision as a “hawkish cut” that signals the BCCh will take some time to assess if macro conditions allow for additional cuts towards the nominal neutral rate range. […] Our baseline scenario had incorporated intermeeting cuts with a pause in January and reaching the ceiling of the nominal neutral rate range of 4.5% in June; yet the BCCh may take even longer to get there.” Goldman Sachs’ Sergio Armella said: “The central scenario of the [Central Bank’s] policy rate corridor is consistent with a hold at the January MPC meeting and a quarterly pace of cuts through the third quarter of 2025 to 4.25% by September. This is consistent with our forecast.”

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