Chile Holds Rates Steady

Defying the predictions of some external analysts for a 25bp rate rise, Chile’s central bank kept the key policy rate unchanged at 5.75% at last week’s meeting. The tone of the post-meeting statement was relatively hawkish, suggesting a possible upwards move in the near future. “The central bank needs to react convincingly in order to prevent the risk that higher contemporaneous inflation readings become entrenched by contaminating medium-term inflation expectations and/or wage settlements and other prices in the economy,” says Goldman Sachs. “However, we believe that there is no need to overreact, as the prices of perishables should at some point mean-revert once the weather patterns normalize and the pace of activity has moderated.”