Chile Central Bank Holds Interest Rate at 4.5% as Inflation and Global Risks Persist

Chile's central bank left its benchmark interest rate unchanged at 4.5% on Tuesday, in line with market expectations, as policymakers weighed persistent inflation against slowing domestic economic activity and ongoing geopolitical uncertainty. The decision was approved unanimously by the bank's board.

In its policy statement, the central bank highlighted continued volatility in global markets stemming from the conflict between the United States and Iran. Although a ceasefire reached in June briefly eased tensions, renewed attacks pushed oil prices back toward $100 per barrel before recent moderation. Meanwhile, copper prices remained elevated at around $6.30 per pound, providing support for Chile's key export sector.

Domestically, the bank pointed to weaker-than-expected economic performance. Chile's Imacec economic activity index declined 0.9% year-over-year in May, while the non-mining component posted 0.7% annual growth, both falling short of projections outlined in the June Monetary Policy Report (IPoM). High-frequency data also indicated that investment slowed more sharply in the second quarter than previously anticipated.

Labor market conditions remained soft, with the unemployment rate increasing as job creation stayed subdued. At the same time, hourly labor costs continued to accelerate, adding pressure to the inflation outlook.

Inflation also remained above target. Headline consumer price inflation rose to 4.3% year-over-year in June, exceeding both the central bank's latest IPoM forecast and market expectations. Core inflation, which excludes more volatile items, stood at 3.4% annually. Despite the elevated inflation reading, medium-term expectations remain anchored, with both the Economic Expectations Survey and the Financial Traders Survey projecting 2-year inflation at 3%, consistent with the central bank's target.

Looking ahead, Chile's central bank said future monetary policy decisions will continue to be evaluated on a meeting-by-meeting basis, depending on incoming economic and inflation data. The minutes from the July policy meeting will be released on August 5, 2026, while the next interest rate decision is scheduled for September 8, 2026.