Chile: Central Bank of Chile holds rates at first 2026 meeting
January hold priced in by markets: On 27 January, the Central Bank of Chile stood pat, leaving its policy rate at 4.50%. The hold matched market expectations and kept rates at their lowest level in four years.
Improving external backdrop and easing inflation drive decision: The Bank partly stood pat due to developments on the external front: U.S. economic activity has recently strengthened, boding well for demand for Chilean exports and GDP; moreover, copper prices—important to the Chilean economy as the country is the world’s largest exporter—have continued to trend up. In addition, on the domestic front, monthly economic activity has evolved broadly in line with expectations, and inflation has continued to ease toward the central bank’s 3.0% target, aided by a stronger peso and lower global fuel costs.
Easing likely to resume this year: Following the decision, the Bank suggested that rates will likely fall to 4.25% in the near term as the output gap is practically closed, inflation is close to target, and there are, according to the Bank, no significant risks to prices in the short term. Accordingly, our Consensus is for rates to end this year 25 basis points below current levels. The Bank shall reconvene on 24 March.
Panelist insight: Itaú Unibanco analysts commented on the outlook:
“The faster-than-expected disinflation underway will likely result in a March rate cut to a terminal rate of 4.25%. Monetary policy is within the neutral range and comes after a prolonged battle at converging inflation to the target. We believe the Board will favor a cautious approach after implementing the next cut, evaluating inflation and activity dynamics during the start of the year.”