Chile Holds Key Rate as Peso Gains Allay Inflation Worries

(Bloomberg) -- Chile’s central bank held its key interest rate unchanged for the second straight meeting as economic activity picks up at the same time that currency gains take the edge off inflation concerns.

Policymakers led by Rosanna Costa voted unanimously to keep borrowing costs steady at 5% late on Friday, as expected by all analysts in a Bloomberg survey. The key rate is down from the post-pandemic high of 11.25% seen in mid-2023.

Central bankers are standing pat on rates as they weather a period of global economic turbulence. A slowdown in inflation has also stalled, with prices rising faster than the 3% target, following a series of electricity hikes. Still, the peso has rebounded roughly 10% from a near record low in early January, keeping a lid on cost-of-living forecasts even as activity firms.

“The uncertainty about the prospects for the global economy have increased significantly since the previous meeting,” policymakers said in a statement accompanying the rate decision. At the same time, “the inflation outlook continues to face significant risks, which reaffirms the need for caution.”

The local economy has been more dynamic than expected, while consumer spending and investment are gradually recovering, the bank added.

In February, US President Donald Trump signed an executive action directing the Commerce Department to examine possible tariffs on copper, Chile’s biggest export. That threat has propelled global prices of the red metal and bolstered the nation’s currency along with it.

Chile’s inflation outlook still gives reason for caution. Consumer prices rose 4.7% from a year prior in February and traders surveyed by the central bank see cost-of-living rises remaining above target in the institution’s two-year policy horizon.

Meanwhile, gross domestic product rose 2.6% last year, the central bank reported on Tuesday, above its estimate of 2.3% from December. Data for early 2025 has shown strength in sectors such as commerce.

Chile’s central bank will publish its latest economic forecasts in its quarterly monetary policy report on Monday.

--With assistance from Giovanna Serafim.

(Updates with unanimous vote in second paragraph, central bank comments in fourth and fifth.)

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