(Bloomberg) -- Chile’s central bank said its future monetary policy decisions should consider significant risks including short-term inflation challenges, according to the minutes to its last key rate meeting.
Board members agreed with the outlook showing the key rate declining over the forecast horizon, policymakers wrote in the minutes to their Dec. 17 decision, when they lowered borrowing costs by a quarter-point to 5%. In this context, caution was needed when gathering information and determining the timing of any further cuts, they wrote in the document published on Monday.
“There was agreement that this trajectory should consider the existence of significant risks, particularly in terms of the short-term inflation outlook,” board members wrote. “It showed an annual CPI variation that would rise to levels near 5% during the first half of 2025, with an upward biased balance of short-term risks.”
Central bankers led by Rosanna Costa have lowered borrowing costs by 6.25 percentage points since mid-2023 as inflation eased from a three-decade high and economic growth became unsteady. Still, they have turned cautious due to factors including a weak peso, energy bill hikes and the new US government. The board sees consumer prices finally returning to the 3% target in 2026.
At the December meeting, policymakers also considered holding rates steady, according to the minutes. While the board ended up opting for a cut given that it was consistent with plans of slowing inflation to target, they agreed “it was necessary to communicate that the window for future pauses was open.”
The currency has dropped about 12% against the dollar in the past year and is near the lowest level since mid-2022. A weaker exchange rate fans inflation by making imports more expensive, and Chile’s small and open economy is vulnerable because it obtains nearly all its fuels from abroad.
Annual inflation eased to 4.2% in November, according to the national statistics institute. Chile’s economic activity expanded that month as industry snapped a streak of three straight declines, the central bank reported on Jan. 2.
Policymakers see gross domestic product expanding between 1.5% and 2.5% this year.
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