Central Bank of Chile Holds Interest Rate at 4.5%

The Central Bank of Chile voted unanimously on Tuesday to keep its benchmark interest rate at 4.5%, marking the sixth consecutive meeting without a change. Policymakers led by Rosanna Costa balanced a stagnant domestic economy against rising global inflationary pressures.

Economic activity in Chile fell 1.7% in July, the largest monthly drop since 2022, while unemployment remains high. Despite this slowdown, annual inflation rose to 4.1% in August, exceeding the 3% target. This increase was driven primarily by higher transportation costs and prices for food and non-alcoholic beverages.

External risks influenced the decision, including rising energy costs linked to the US-Iran war and hawkish signals from Federal Reserve Chairman Kevin Warsh. Officials expressed concern that U.S. rate hikes could weaken the Chilean peso and increase import costs.

President José Antonio Kast has attempted to stimulate growth through an omnibus bill featuring corporate tax cuts and investment guarantees, stating the economy should recover by the end of the year. However, the central bank warned that the macroeconomic outlook remains subject to a higher-than-usual degree of uncertainty, noting that domestic weakness may prove more persistent than anticipated.