Chile: Central Bank Paves the Way for a Pause in Interest Rate Cuts

The benchmark interest rate now stands at 5.75%.

Ignacio Teson•Wednesday, June 19, 2024•1 min read

The decision to reduce the monetary policy rate by 25 basis points was adopted with dissent within the Council, as the Vice President voted for a 50 basis points adjustment.

The Central Bank chose not to surprise the market. As anticipated, the monetary authority lowered the Monetary Policy Rate (MPR) by 25 basis points in its monthly meeting in June.

Thus, the benchmark interest rate now stands at 5.75%.

However, the decision was not unanimous among Council members. While President Rosanna Costa and councilors Luis Felipe Céspedes, Claudio Soto, and Alberto Naudon opted for a 25-point cut, Vice President Stephany Griffith-Jones voted for a 50-point reduction in the MPR.

This decision marks the first split vote among councilors since January, when Céspedes voted for a 125-point reduction while the rest of the councilors supported a 100-point cut.

Additionally, this adjustment comes just before the Central Bank presents its Monetary Policy Report (MPR) for June to the Senate tomorrow, Wednesday.

Looking ahead, however, the bank anticipates a pause in the pace of rate cuts, as the economy shows signs of recovery and inflation struggles to return to the autonomous entity’s target of 3%.

“The Council estimates that, if the assumptions of the central scenario materialize, the MPR would have accumulated the bulk of the cuts planned for this year during the first half. The central scenario of the June MPR considers that the MPR will continue to decrease throughout 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,” states the Council’s communication.

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ABOUT THE AUTHOR See More

Ignacio Teson

Economist and Financial Analyst

Ignacio Teson is an Economist and Financial Analyst. He has more than 7 years of experience in emerging markets. He worked as an analyst and market operator at brokerage firms in Argentina and Spain.