Market Analysis by Quasar Elizundia, Expert Research Strategist at Pepperstone
January 29, 2025 –
“In line with market expectations, the Central Bank of Chile announced today its unanimous decision to keep the monetary policy rate (TPM) unchanged at 5%. This pause follows a series of rate cuts in 2024, including a 25-basis point reduction in December, amounting to a total of 325 basis points or 3.25% reduction for the year.
This decision reflects a delicate balance between addressing inflationary pressures and supporting economic recovery. The Central Bank expressed concern over the recent weakness of the Chilean peso against the U.S. dollar, which previously fell below the 1,000 pesos per dollar mark, and its potential impact on inflation dynamics.
While the Chilean economy shows relative signs of improvement, the peso’s depreciation and persistent inflationary pressures have forced the Central Bank to maintain a cautious stance. This pause should allow the BCCh to carefully evaluate the evolution of economic variables and better calibrate future actions.
The Central Bank’s decision comes in a global context of uncertainty, marked by the strength of the U.S. dollar, geopolitical tensions, and the evolving Chinese economy. The U.S. Federal Reserve has also adopted a pause, influenced by recent economic data and, to some extent, awaiting greater clarity on the inflationary impact of Trump administration policies.
The CLP, like many emerging market currencies, remains exposed to dollar volatility and U.S. trade policies. It is crucial to closely monitor these external factors and their potential implications for the Chilean economy and LATAM markets.
Although the Central Bank has not ruled out further rate cuts in the future, today’s decision indicates a more prudent approach. Market expectations currently suggest that the TPM could reach 4.25% by the end of 2025, implying additional cuts. As stated in the BCCh’s communiqué: “We remain committed to conducting monetary policy with flexibility, ensuring projected inflation reaches 3% within a two-year horizon.”
Analysis by Quasar Elizundia, Expert Research Strategist – Pepperstone