Chile Unexpectedly Hikes Key Rate to 3.25%

The Central Bank of Chile raised its benchmark interest rate by 25bps to 3.25 percent on October 15th in an attempt to curb inflation. Policymakers also said further adjustments to assure the convergence of inflation to target will depend on new incoming data and its implications for inflation.
Central Bank of Chile | Joana Ferreira | 10/15/2015 11:27:39 PM
Analysts were expecting the bank to leave the key rate unchanged at 3 percent, as policymakers struggle to prevent higher consumer prices amid sluggish growth. Annual inflation rate came in a 4.6 percent in September 2015, well above the bank's 2 to 4 percent tolerance range.

Statement by the Central Bank of Chile:

Internationally, following the Federal Reserve meeting, the dollar depreciated multilaterally and the prices of most of the risky assets increased. However, market volatility remains high. Aditionally, risks persist regarding the evolution of the Chinese economy, and doubts about the performance of some Latin American countries—particularly Brazil—have increased. Commodity prices showed mixed movements during the month.

On the domestic front, September’s CPI inflation was lower than expected, although annual inflation—headline and core—is expected to remain high, in line with forecasts in the last Monetary Policy Report. Inflation expectations two years ahead are at 3 percent, and their evolution will continue to be monitored with special attention. In August, activity fell short of expectations, with a surprise coming from the mining sector. Demand indicators are still weak. Confidence indicators posted a marginal increase, but remain in pessimistic territory. Private job creation is still dynamic and annual wage growth has slowed.

The future path of the monetary policy rate considers additional adjustments aimed to ensure the convergence of inflation to the target, at a pace that will depend on incoming information and its implications on inflation. The Board reiterates its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3 percent over the policy horizon.

Chile Unexpectedly Hikes Key Rate to 3.25%