Chile's Central Bank Upholds Cautious Game Plan, Says Deutsche Bank

06:42 AM EDT, 03/25/2025 (MT Newswires) -- The Chilean Central Bank (BCCh) decided by unanimity to leave the policy rate steady at 5%, in line with Deutsche Bank's consensus-matching expectation.

The bank read the policy statement as striking a slight hawkish tone. On the external front, the BCCh noted the substantial surge of uncertainty stemming from geopolitical developments, import tariffs imposed by the United States, and the retaliatory measures undertaken by affected countries.

The Chilean authorities noted the downside and upside effects of changes to the U.S. trade policy on this economy's growth and inflation outlook, respectively.

On the other hand, the statement pointed out the relative dynamism of activity in China since late 2024. This external backdrop has rendered an atypical performance of global financial markets, as per the Council's appraisal, where U.S. equities, rates and currency reflect its idiosyncratic headwinds vis-a-vis European and Chinese assets; commodity prices have also reflected the shifts in external conditions, with copper prices logging increases and oil prices sliding.

Regarding the domestic economy, authorities acknowledged that activity had performed better in late 2024 and early 2025.

Inflation has behaved according to the BCCh's expectations. While the Council noted that some two-year inflation expectations metrics remain above the 3% target, the lack of a more elaborate discussion -- in contrast with the January statement -- signals that the authorities' concerns over this issue have eased somewhat, in Deutsche Bank's view.

The updated rate corridor suggests that under the BCCh's

central scenario, authorities envisage the policy rate to stay unchanged at 5% by mid-2025 (mid-point of the 4.8%-5.2% range), closing 2025 around 4.75% (close to mid-point of 3.7%-5.8% range), and ending 2026 around 4.35% (close to mid-point of 3.3%-5.5% range).

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