Chile's Central Bank Maintains Key Interest Rate at 4.5%

Central Bank Holds Rate Amidst Inflation Outlook

The Banco Central de Chile (Central Bank of Chile) announced on January 27, 2026, its unanimous decision to maintain the Monetary Policy Rate (MPR) at 4.5%. This move aligns with the bank's anticipation of lower inflation in the short term, with projections indicating that inflation will converge to its 3% target by the first quarter of 2026.

The decision follows a period where the Central Bank had previously cut the rate to 4.5% in December 2025, responding to a faster-than-anticipated decline in inflation and an improving global economic environment.

Factors Influencing the Decision

Several factors contributed to the Central Bank's decision to hold the rate steady. The board cited a 'more supportive external backdrop' and 'improved global conditions,' including stronger economic activity in the United States and an increase in copper prices, which is a key export for Chile. These external elements have provided a boost to the Chilean economy.

Domestically, economic activity and demand have largely met the bank's expectations, with short-term indicators for consumption and investment showing growth 'in line with expectations'. However, the labor market continues to exhibit 'sluggish' job creation.

Inflationary Projections and Future Outlook

The Central Bank's primary objective remains to ensure that projected inflation reaches its 3% target over a two-year horizon. The bank noted that inflation is likely to be below its previous forecasts in the short term, following recent softer-than-expected data. Both analysts' and market participants' two-year inflation expectations are anchored at the 3% target.

Despite the current hold, some analysts anticipate further rate cuts, potentially as early as March, which could bring the policy rate closer to the estimated neutral range. The Central Bank has reaffirmed its commitment to conducting monetary policy with flexibility, adjusting future rate movements based on the evolving macroeconomic landscape.

Economic Context

The Chilean economy has shown resilience, with the Central Bank noting that several factors negatively impacting activity are considered 'temporary'. The appreciation of the Chilean peso and gains in the stock market (IPSA) have also been observed. While global risks remain high, including geopolitical, fiscal, and financial factors, the Central Bank continues to monitor these developments closely.