Chile Interest Rate

The Central Bank of Chile unanimously voted to reduce the policy interest rate by 25 bps to 5% at its December meeting, reflecting persistent external and domestic challenges. Globally, the U.S. economy remains resilient, while China’s weakness weighs on copper prices, now near $4/lb. Rising global uncertainty, long-term interest rates, and a stronger dollar have pressured Chile’s peso, which depreciated 6% since the last meeting. Domestically, Q3 activity aligned with forecasts but showed weak private consumption and investment, particularly outside the mining sector. Inflation reached 4.2% in November, above projections, due to higher costs from peso depreciation, rising wages, and electricity tariffs. Short-term inflation pressures may push rates toward 5% in H1 2025, though weaker domestic demand could ease pressures longer term. The Central Bank remains cautious, reaffirming its flexible approach to ensure inflation converges to 3% within two years.