Chile central bank stuns market with a half-point rate reduction

Santiago. Chile’s central bank unexpectedly cut is key interest rate by 50 basis points, the biggest reduction in a decade, as economic growth and inflation remain weak.

Policymakers reduced the benchmark rate to 2.5 per cent, surprising all 18 economists surveyed by Bloomberg, who had expected borrowing costs to be left unchanged.

Growth has remained weak in the first four months of the year, even as a flood of immigrants into the country from Venezuela has increased its estimate of the potential growth rate, the pace at which the economy can expand without fuelling inflation. Policymakers also cut their estimate for the neutral rate of borrowing costs by a quarter-point.

“They are taking preventive action,” said Miguel Ricaurte, an economist at Banco Itau in Santiago. “We are probably going to have a long pause now to see how the global economy develops.”