Chile’s Central Bank Is Set to Deliver First Interest Rate Cut of 2025

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(Bloomberg) — Chile’s central bank will likely cut its interest rate by a quarter-point on Tuesday, lowering borrowing costs for the first time this year as policymakers seize on an improving inflation outlook.

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Board members led by Rosanna Costa will reduce the overnight rate to 4.75% after markets close, according to all economists in a Bloomberg survey. Policymakers have kept borrowing costs steady for the last four meetings after having lowered them from a high of 11.25% seen in mid-2023.

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Chile central bankers will loosen policy as core inflation — which excludes volatile items like energy — continues to retreat, while unemployment ticks higher in a headwind for the economy. At the same time, global risks such as the conflict in the Middle East have stayed contained. Consumer price growth would be at the 3% target already if it weren’t for electricity hikes over the past year, board member Luis Felipe Cespedes said in an interview last month.

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What Bloomberg Economics Says

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“We expect Chile’s central bank to cut its benchmark interest rate by 25 basis points to 4.75% on July 29. Forward guidance is likely to anticipate additional cuts this year and next, with the rate ending the cycle at its neutral level. Policymakers see US tariffs having a small impact on Chile. The 50% levy on copper starting on Aug. 1 and likely higher so-called reciprocal tariffs are risks.”

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— Felipe Hernandez, Latin America economist

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— Click here for full report

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The bank will publish the decision on its website at 6 pm in Santiago, together with a statement from its board. Here’s what investors will be looking for.

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Neutral Rate

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Financial markets expect the central bank to leave the door open to further easing, though without saying how soon the next reduction could come.

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Specifically, investors see policymakers reiterating guidance that rates will fall their neutral range — which neither stimulates nor restricts the economy — over the coming quarters, as long as the overall outlook evolves as expected. Board members estimate the neutral level at between 3.5% and 4.5%.

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While economic growth has firmed and wage increases are still strong, “the dovish tone of board members has been reshaping the monetary policy debate among analysts,” Barclays economists including Andreas Kolbe and Andrea Kiguel wrote in a note.

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Economic Scenario

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Central bankers will say that both traders and economists surveyed by the institution see inflation on target in two year’s time — which is policymakers’ preferred horizon — helping to clear the way for easing.

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They will also nod to a set of recent data that bodes in favor of cautious rate cuts. Since the last monetary policy decision in June, consumer prices fell more than expected, while overall economic activity declined and unemployment rose.

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“The labor market remains a soft spot for the economy and cooling sequential wage growth should help ease inflation pressures in the labor-intensive services sector over the coming months,” Goldman Sachs Group Inc. economist Sergio Armella wrote in a note. “Notably, the unemployment rate has now increased by 0.9pp year-to-date.”

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—With assistance from Giovanna Serafim.

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