Chile rate-hike bets grow after hawkish minutes

Minutes from the October policy meeting showed the board debated a 25 basis point hike before unanimously holding the policy rate at 4.5%. All five board members evaluated raising the Tasa de Política Monetaria to 4.75%, and some said such an increase had "a solid basis of support".

The meeting on October 27 marked the seventh consecutive decision to keep the policy rate unchanged at 4.5%. Nonetheless, the discussion described in the minutes indicates a more hawkish stance, with board members weighing the risks that recent cost shocks could spill over into broader price increases and prove more persistent than usual.

Headline inflation reached 4.1% year-on-year in September, while core inflation stood at 3.2%. The minutes said short-term inflation expectations had risen and were above projections in the September Monetary Policy Report. At a two-year horizon, inflation expectations were 3.0% in the Survey of Economic Expectations.

Traders are positioning for further tightening, with market pricing implying at least a 25 basis point rate increase within six months. Derivatives suggest that inflation will remain above the central bank’s 3% target over the next two years, reinforcing the perception that the policy stance may need to become more restrictive to anchor expectations.

A sharp rise in energy prices was a central concern for the board. The minutes said the average of WTI and Brent had risen about 25% since the statistical close of the September Monetary Policy Report.

Board members agreed that the accumulated cost shock since March had increased the risk that higher input prices could propagate more strongly to other prices. They warned that once inflation expectations and price-setting mechanisms begin to drift from the target, the cost of restoring convergence to the goal could be considerably higher, underscoring their heightened concern about the inflation outlook.

Despite the hawkish tone, the board ultimately opted for patience, voting unanimously to keep the policy rate at 4.5%. Some members argued that weak demand might prove more persistent than anticipated, creating slack in the economy that would help contain inflation pressures without an immediate rate hike.

These policymakers favored aligning any future increase with clearer forward guidance on the rate path, something they judged could be communicated more effectively alongside the next Monetary Policy Report. One board member noted that the central bank’s credibility allows it to accommodate temporary shocks without automatic rate moves, but stressed that this credibility depends on actions and communication that reflect the institution’s greater concern over inflation and its readiness to act if needed.

The minutes said the next monetary policy meeting is scheduled for Tuesday, December 15, 2026.

For now, the policy rate remains at 4.5%, but both the internal debate and market pricing point to a rising probability of at least one 25 basis point hike in the near term. The balance between persistent cost shocks, elevated expectations and still-weak demand will likely shape the board’s decisions in the coming months.