MercoPress. South Atlantic News Agency

Chile's Central Bank keeps benchmark interest rate unchanged

“Uncertainty about the outlook for the global economy has increased significantly since the previous meeting,” the Central Bank panel admitted

Chile's Central Bank unanimously decided Friday to keep the monetary policy interest rate at 5%, thus responding to market expectations. It was the second consecutive month the rate has been held steady, reflecting caution amid heightened global economic uncertainty driven by geopolitical risks and US tariff announcements under President Donald Trump. These factors have impacted US growth prospects and inflation expectations, prompting the Federal Reserve to pause its rate cuts.

“Although, in general terms, the development of the macroeconomic scenario has been in line with what was considered, the available background points to an inflationary scenario that continues to face relevant risks, which reaffirms the need for caution. The Council will evaluate the next movements of the TPM bearing in mind the evolution of the macroeconomic scenario and its implications for inflationary convergence,” the Council noted.

Locally, inflation aligns with forecasts, with February 2025 CPI at 4.7% and core CPI at 3.9%, though two-year inflation expectations remain above 3%. The bank highlighted a dynamic Chilean economy, with 2.6% GDP growth in 2024 and a 2.5% Imacec rise in January 2025, fueled by exports and gradual recovery in consumption and investment. Global financial trends, including a weaker dollar and rising copper prices, have also influenced Chile’s markets, with the peso appreciating 7% and the IPSA up 6%.

The bank will release January's Monetary Policy Report (IPoM) next Monday, with experts foreseeing downward growth and upward inflation this year.

Friday's was the first Committee meeting since the trade war between the United States and countries such as Canada, Mexico, and China, as well as the European Union began to escalate, due to the reciprocal tariffs.

“Uncertainty about the outlook for the global economy has increased significantly since the previous meeting, in the face of a rise in geopolitical risks and various tariff announcements by the US government and the response of affected countries. This has particularly affected growth prospects in the United States, with more limited impacts on the rest of the world,” Chile's monetary authority also underlined.

“With respect to other economies, a certain dynamism of activity in China stood out at the end of last year and the beginning of this one, in the midst of new stimulus plans announced by its authorities,” it added while highlighting a global weakening of the US dollar, which has driven upwards the price of some commodities.

The price of copper on the London Metal Exchange rose nearly 8% amid growing Chinese demand “and a significant rise in its price in the United States, affected by the threat of tariffs.”

Earlier this week, Chile's Gross Domestic Product (GDP) was reported to have grown by 2.6% in 2024, above market expectations, with exports driving the country's dynamic economy in addition to the improved performance of some agricultural and livestock products and tourism.

“The labor market continues to show limited slack, in a context in which different sources show an increase in employment at the margin and the annual growth of real wages continues to be above the average of the last decade. The latest Capital Goods Corporation survey reinforced the outlook for higher investment amounts in large projects in the short term. Business and household expectations have improved,” the Central Bank's Committee also pointed out.