FX.co ★ Chile Holds Interest Rate at 4.5%

The Central Bank of Chile left its benchmark interest rate unchanged at 4.5% at its July meeting, in a unanimous decision that was widely anticipated by markets. Policymakers noted that the macroeconomic outlook remains subject to higher-than-usual uncertainty, as renewed tensions between the US and Iran have pushed oil prices back toward $100 per barrel and cast doubt on the global supply outlook.

On the domestic front, economic activity weakened more than expected: May’s Imacec fell 0.9% year-on-year, while both investment and labor market conditions deteriorated. At the same time, annual inflation accelerated to 4.3% in June, slightly above projections, as core inflation rose faster than anticipated and short-term inflation expectations picked up in response to higher oil prices. Nonetheless, inflation expectations over a two-year horizon remained anchored at 3%.

The board reiterated that it will continue to evaluate monetary policy on a meeting-by-meeting basis and stands ready to take whatever measures are necessary to bring inflation back to its 3% target over a two-year horizon.