SANTIAGO (Reuters) -Chile’s central bank cut its benchmark interest rate on Tuesday by 75 basis points to 6.50%, in a unanimous decision by its governing board, saying the rate would likely be reduced further.
The cut is in line with forecasts in a traders’ poll last week, which also predicted the bank will reduce the rate to 4.25% within 12 months.
In a statement, the bank said it foresees further monetary policy rate cuts, with the size and timing of those moves taking into account the “evolution of the macroeconomic scenario and its implications for the trajectory of inflation.”
The bank’s statement tweaked its forward guidance, removing language from its January statement that predicted the rate reaching its “neutral level” in the second half of 2024.
The removal of the sentence “adds a hawkish flavor” to the bank’s 75-basis-point cut, J.P. Morgan analyst Diego Pereira said in a note to clients.
The South American nation’s central bank raised interest rates from 0.50% in mid-2021 to a cycle-high of 11.25% in late 2022. The bank held at that rate before kicking off monetary easing in July as inflation began to cool.
Chile’s annual inflation peaked at 14.1% in August 2022 and came down to 3.9% at the end of 2023. It has since gone back up, reaching 4.5% in February.
The central bank’s board on Tuesday added that inflation expectations are aligned with its 3% target, and “rising inflation figures at the beginning of the year and higher imported cost pressures emphasize the need to continue closely monitoring its evolution.”
While Chile faced a sharp economic downturn in 2023 after a rapid post-pandemic recovery, the economy “has succeeded in closing the significant macroeconomic imbalances of previous years,” the board said.
Data published by the central bank on Monday showed Chile’s economic activity index posted its largest year-on-year increase in almost two years in February.
