Chile Halts Interest Rate Cuts, Citing Inflation Risks
Chile's central bank has paused its cycle of interest rate cuts, leaving all options open for future adjustments.
Inflation Concerns
The decision reflects heightened uncertainty and risks to both domestic and global inflation. A weaker peso, rising labor costs, and increased electricity tariffs are driving inflation dynamics, the central bank noted.
Future Policy Open-Ended
Unlike the previous statement, which signaled potential rate cuts in the coming quarters, the current communique is more open-ended. The board will evaluate future rate movements based on macroeconomic conditions and their impact on inflation convergence.
Cautious Approach
The central bank is adopting a cautious stance as it navigates near-term inflation pressures that have hindered progress towards the 3% target. Wages, electricity costs, and a depreciating peso are contributing to higher prices.
Economic Activity
Despite the inflationary pressures, economic activity is gradually recovering. Data suggests a stronger-than-expected fourth quarter, but bank lending and the labor market remain weak.
Global Context
The central bank expressed concerns about global economic volatility, including the change of government in the United States and ongoing sources of uncertainty.
Stronger Dollar
The Federal Reserve's expected pause in its easing cycle, coupled with President Trump's trade tariffs and tax plans, could lead to a stronger dollar worldwide.
Hawkish Bias
Economists suggest that the central bank's statement leaves room for a more hawkish bias. Long-term inflation expectations may not be fully anchored, raising concerns about potential rate increases if inflation surprises or the exchange rate depreciates further.