Central Bank of Chile sees lower rate hikes after hike to 9%

(Bloomberg) – Chile’s central bank slowed the pace of monetary tightening for the second straight meeting and said it would scale back the scale of future hikes to bring inflation back to its target.

The bank’s board, led by Rosanna Costa, raised the overnight rate by 75 basis points to 9% on Tuesday, as expected by nine of 15 economists in a Bloomberg survey. Six other analysts forecast a rise of a full percentage point. Policymakers have now raised borrowing costs by a total of 850 basis points since July.

With the information at its disposal, “the board of directors estimates that to ensure the convergence of inflation to 3% over a two-year horizon, additional adjustments of a lesser magnitude in the policy rate will be necessary,” the bank said. in a statement.

The central bank’s balance on rates is becoming more precarious as prices rise at the fastest pace in nearly three decades, even as the economy contracted in the first quarter. The national statistics institute is likely to report on Wednesday that inflation accelerated further in May, further complicating matters for the central bank, known as the BCCh.

A 75 basis point rise indicates “a still hawkish stance,” economists at Barclays Plc wrote in a report ahead of the decision. But at the same time, it shows “BCCh concerns about growth by cutting the pace by 125bps in the previous meeting.”

Read more: Chilean economy comes back to earth with first quarter decline

The government is taking steps to reduce the impact of inflation on consumers. In recent weeks, the administration of President Gabriel Boric has outlined plans to double the amount of resources diverted to a fuel price stabilization fund known as Mepco, while increasing funding for the poor.

Consumer prices likely rose 11.4% in May from a year earlier, according to economists polled by Bloomberg, almost four times the inflation target of 3%.

Economic activity fell in April as declines in mining and manufacturing overshadowed an increase in trade. Businesses are delaying spending as the country drafts a new constitution, which will go to a referendum on September 4.

(Updates with statement quote in third paragraph.)

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