Chile's Central Bank Cuts Interest Rate Again: What It Means for Inflation

Chile's central bank has cut its benchmark interest rate by 25 basis points to 5.5%, aligning with traders' expectations. The reduction, executed through a unanimous vote, aims to bring the interest rate to a neutral level faster than forecasted. The bank targets 3% inflation within two years.

Chile's central bank trimmed its benchmark interest rate by 25 basis points to 5.5% on Tuesday, matching traders' forecasts and arriving through a unanimous decision.

The move lowers the rate by 575 basis points from a peak of 11.25% in July 2023. According to the bank, the adjustment aims to bring the interest rate to a neutral level quicker than anticipated in June, while reiterating its goal to achieve a 3% inflation target within two years.

The central institution also noted decreased risks of prolonged medium-term inflation due to external shocks. A recent poll revealed that traders expect the benchmark rate to reach 4.50% within 12 months, with monthly inflation likely to be 0.2% in August and 3.7% over the coming year.

(With inputs from agencies.)