(Bloomberg) -- Chile’s central bank kept its key interest rate unchanged, surprising most economists by pausing its yearlong easing cycle as inflation pressures increase, while indicating that the halt was likely to be temporary.
Policymakers voted unanimously to hold borrowing costs at 5.75% on Wednesday, as expected by just four of 20 analysts in a Bloomberg survey. The other 16 forecast a quarter-point cut.
Central bankers led by Rosanna Costa interrupted an easing cycle that has shaved 550 basis points from rates in just over a year. While a rebound in economic growth at the start of 2024 has started to fade, rising energy prices are set to push inflation further above target. The bank doesn’t see see cost-of-living rises back at the 3% goal until 2026.
The decision to hold borrowing costs was in line with the bank’s strategy to “continue reducing the key rate during the horizon of monetary policy at a rhythm that takes into account macro-economic trends and their implication for inflation,” policymakers said in a statement accompanying the decision.
Chile’s decision came hours after the Federal Reserve voted to leave borrowing costs at the highest level in more than two decades and Chair Jerome Powell said an interest-rate cut could come as soon as September.
Chile’s central bank raised its 2024 economic growth forecast to between 2.25% and 3%, according to estimates published on June 19. Still, economic activity has fallen for three consecutive months after outperforming expectations earlier this year.
Going forward, the headline inflation rate will be lifted by 145 basis points in the next 12 months due to the increase in electricity tariffs, which had been frozen since 2019, the central bank said last month.
--With assistance from Giovanna Serafim.
(Updates with quote from central bank in fourth paragraph)
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