Chile: Policy pause reflects fragile growth – Societe Generale

Societe Generales Dev Ashish reports that the Central Bank of Chile kept the monetary policy rate at 4.50% in September, as weak domestic growth offsets rising external inflation risks. The bank highlights disappointing activity, deteriorating labour markets and anchored inflation expectations. Societe Generale expects an extended pause, with future moves depending on inflation expectations and a clearer recovery in Chilean activity.

BCCh balances inflation risks and weak growth

“The Central Bank of Chile (BCCh) left the monetary policy rate (MPR) unchanged at 4.50% at its September meeting, in line with our and consensus expectations.”

“The decision underscores policymakers' preference to wait for greater clarity before adjusting policy in either direction, although the tone was somewhat less dovish than we had expected.”

“We continue to expect an extended pause at 4.50%, although the balance of risks has increased significantly.”

“While higher oil prices and potential Fed tightening keep the risk of future BCCh hikes alive, persistent weakness in growth and employment argues against near-term tightening.”

“Until inflation expectations move meaningfully away from target or domestic activity shows a clearer recovery, policymakers are likely to remain on hold, balancing elevated inflation risks against a still-fragile economy.”

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