The Central Bank of Chile decided to cut its monetary policy rate by a quarter of a percentage pointThe bank’s board of directors thus unanimously decided to lower the rate to 5.5%.
It should be noted that Chile had taken a break in July motivated in part a short-term inflationary shock. But now it has resumed its cycle of easing.
Gross domestic product, meanwhile, contracted for the first time in a year in the second quarter, although a monthly indicator of activity picked up in July.
GDP contracted by 0.6% between April and June compared to the previous quartermainly due to lower domestic demand and a decline in mining activity.
Although activity rebounded more than expected in July, The economy also recently posted its biggest monthly job loss since the pandemic.
“The Council estimates that, if the assumptions of the central scenario of the September Report are realized, The reduction of the monetary policy rate towards its neutral level will be somewhat faster than expected in June“the bank said in its press release.
Short-term outlook
The two-year inflation expectations, the bank’s official monetary policy horizon, are at 3%. Still, the board has little room to cut rates, as annual inflation hit 4.6% in July and is expected to accelerate further.
The Central Bank will update its inflation and growth projections in its monetary policy report tomorrow. It currently expects inflation to hit the 3% target in 2026.
Source: Ambito
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