MercoPress. South Atlantic News Agency

Chile's Central Bank keeps TPM interest rate unchanged

The TPM is thus expected to keep dropping “during the monetary policy horizon” but not now, the bank insisted

Chile's Central Bank decided this week to keep the monetary policy interest rate (TPM) unchanged at 5.75%, it was announced in Santiago after Wednesday's monthly Council meeting during which July's 0.25% lowering from 6% was upheld.

“The Board estimates that, if the assumptions of the central scenario of the June IPoM materialize, the TPM would have accumulated during the first half of the year the bulk of the cuts foreseen for this year. The decision to maintain at this meeting is congruent with the strategy considered in the central scenario of said report, which foresees that the TPM will continue to be reduced during the monetary policy horizon, at a rate that will take into account the evolution of the macroeconomic scenario and its implications for the inflation trajectory,” the bank said in a statement.

The TPM is thus expected to keep dropping “during the monetary policy horizon, at a pace that will take into account the evolution of the macroeconomic scenario and its implications for the inflation trajectory.”

The Central Bank reported a decline in headline inflation at a moderate pace, mainly due to a slow reduction in the services components, it said. It also noted that in the United States, June's inflation was below expectations and the labor market has shown signs of moderation, which has made the Federal Reserve's (Fed) monetary policy projections “somewhat less restrictive.” However, “global growth prospects show no major changes for this and next year.”

Regarding international financial markets, “long-term interest rates are somewhat lower, both in developed and emerging economies, while stock markets have shown a mixed performance.”

The Central Bank also pointed out that credit remains weak with low demand in all segments, while unemployment remained at 8.3% in the last quarter of 2024. Inflation for this year is projected to stand at 3.8% and is expected to reach 3% within two years. An increase in electricity bills was said to be shifting the index off target.

TPM rate cuts started in July 2023 after stagnating at 11.25% in December 2022 following 11 consecutive hikes amid the Covid-19 pandemic economic contraction.