SANTIAGO: Chile’s central bank has kept its key interest rate unchanged for the fifth straight meeting, as fresh swings in global oil costs and recent surprises in economic data support cautious monetary policy.
Policymakers, led by Rosanna Costa, voted unanimously to hold borrowing costs at 4.5%, as expected by all 17 analysts surveyed by Bloomberg.
In an accompanying statement, board members wrote that the latest economic activity data was weaker than expected, while inflation data came in above estimates.
Globally, the new escalation of the Middle East conflict stoked uncertainty over the supply of oil, they wrote.
“The macroeconomic scenario remained subject to a higher-than-usual degree of uncertainty, particularly given the resurgence of risks associated with the ongoing conflict in the Middle East,” the policymakers said.
“The board estimated that it will need to continuously assess alternative scenarios.”
Chile central bankers are standing their ground as they face a double-whammy of global and domestic instability.
Brent tumbled on Monday and Tuesday after surging last week on fighting in the Middle East, stoking price volatility in the South American nation which imports nearly all its fuels.
At the same time, heavy rains earlier this month caused about US$500mil in damages, weighing on an economy that already has the highest unemployment in five years.
Central bankers signalled they are facing a combination of upside threats to inflation such as more expensive oil, and also downside risks like a weaker economy, said Sebastian Diaz, an economist at Pacifico Research.
“Their strategy is to be cautious and to wait for the outlook to become clearer.”
Brent crude oil tumbled below US$85 a barrel after briefly rallying above US$100 last week, whiplashing local inflation expectations.
In their statement, central bankers said high-frequency indicators suggested local investment slowed more than expected in the second quarter and that consumption has also waned.
Chile’s unemployment rate has risen while job creation has been “persistently weak”, board members wrote.
The country is also recovering from winter storms that killed at least 13 people, left tens of thousands of residents isolated, caused localised disruptions to mining operations and temporarily closed schools.
Those losses could cost the equivalent of 0.1% to 0.2% of gross domestic product and cause supply shocks to food and transportation, according to a report by LarrainVial.
Even before the storms, annual inflation sped up to 4.3% in June, well above the 3% target. Policymakers said in their statement that the broader impact from the fuel price shock has remained consistent with historical averages.
Central bankers see cost-of-living increases easing back to their goal by the second quarter of 2027, according to estimates published last month.
The Chilean central bank meeting comes ahead of the Federal Reserve’s Wednesday rate announcement, with officials in the world’s largest economy confronting a resurgence in price pressures that could make their decision on whether to hold or hike borrowing costs a close call.
“The future path of the monetary policy rate will be assessed on a meeting-by-meeting basis based on how events unfold,” Chile central bankers wrote. — Bloomberg
