The Central Bank of Chile announced this Tuesday a new increase of 1.5 points in the interest rate, from 5.5% to 7%, given estimates that annual inflation will close close to 10% and uncertainty in the world economy. for the war in Ukraine.
The Central Bank Council unanimously decided to “increase the monetary policy interest rate by 150 basis points, up to 7%” -its highest level since February 2009 (7.25%)-. Previously, it raised the rate from 4% to 5.5%, after a 2021 that closed with an inflation of 7.2% -the highest in 14 years- and that for this year the BC expects to be higher.
“Annual inflation increased to 7.8% in February, with a difference that was largely due to higher underlying inflation, especially for goods. The short-term inflation outlook has increased again, bringing annual inflation closer to figures of 10%,” said a BC statement.
“Inflation expectations two years ahead have remained above 3% for several months, a situation that will continue to be monitored by the Council,” he added.
The Russian invasion of Ukraine “has raised uncertainty significantly and has intensified the increase in the prices of raw materials”, especially energy, food and some metals, and the main economic and financial repercussions “have remained limited to countries directly involved in the conflict and their neighbors,” according to the issuing institute.
“Domestic demand in the fourth quarter, and the data available from the beginning of the year, suggest that the economy is already on a path to reduce the high spending levels of last year.”
The BC estimates that future increases in the rate “would be lower than those made in recent quarters. In any case, this will depend on the evolution of the macroeconomic scenario.”
Since July of last year, the Central Bank began with its policy of increasing the rate, after 30 months of keeping it stable at 0.50%, mainly due to an excess of internal liquidity that has put pressure on domestic prices.
