Central Bank Cuts Interest Rate to 4.5% Amid Rising Copper Prices and Improved Inflation Outlook

Original article: Banco Central recorta tasa a 4,5% con decisión unánime y cobre sobre US$5 la libra

The Chilean Central Bank’s Council announced a new reduction of the Monetary Policy Rate (TPM) by 25 basis points, bringing it down to 4.5%. This unanimous decision by the five-member board was made in a context of decreasing inflation, a more favorable external environment, and a significant rebound in copper prices, which today exceed US$5 per pound.

The statement issued at the conclusion of the December Monetary Policy Meeting (RPM) presents a macroeconomic scenario characterized by both opportunities and challenges, justifying the central bank’s decision to continue the normalization process of monetary policy that began in October.

In the release, the Council highlighted that the «global landscape shows somewhat greater external momentum for the Chilean economy,» based on the observation that, in the third quarter, «the activity of major trading partners may have increased more than expected.»

The Central Bank attributed this dynamism to «the rise in investments in new technologies and increased fiscal spending in developed economies.»

Additionally, it noted that the Federal Reserve (Fed) cut its benchmark rate in December and that market expectations anticipate further cuts next year.

This environment has allowed «global financial conditions to continue improving, particularly due to generalized stock market gains.»

A key factor of vital importance for Chile is copper. The central bank highlighted that «the price of copper has significantly increased, surpassing US$5 per pound.»

Nevertheless, the organization maintained a cautious tone, warning that «global risks remain elevated and a sharp deterioration in financial conditions cannot be ruled out.»

Locally, markets have mirrored the global upward trend. «The stock market (IPSA) has recorded gains, and long-term interest rates have decreased in recent months. The peso has appreciated,» the release noted. Credit availability remains stable, although the commercial portfolio is showing some signs of recovery.

The evolution of the Chilean economy has, in general terms, been «in line with expectations,» with varying performance across sectors.

The Central Bank specified that in the third quarter, «non-mining GDP growth aligned with expectations, particularly highlighting performance in services and, to a lesser extent, in commerce.» In contrast, «total GDP growth was affected by weak performance in the mining sector.»

Activity and Inflation: The Mix Allowing for the Cut

Breaking down expenditures, investment in machinery and equipment expanded beyond expectations, while «private consumption performed in line with what was anticipated.»

The labor market, on the other hand, «shows improvements, although significant challenges remain. The unemployment rate has dropped in recent months, but job creation continues to be limited.»

The primary reason behind the Central Bank’s decision to cut the Monetary Policy Rate is the slowing inflation rate.

According to the institution, the data is compelling, with «both total and core inflation decreasing, with an annual variation of 3.4% in November for both indicators.»

Furthermore, inflation expectations over a two-year horizon, according to both the Economic Expectations Survey (EEE) and the Financial Operators Survey (EOF), «stand at 3%, aligning with the Central Bank’s target.»

This progress has been notable because «inflation has declined faster than projected last September, in a local and global economic environment that is somewhat better than expected.»

In its new central scenario, presented in the December Monetary Policy Report (IPoM), «inflation is expected to reach the 3% target by the first quarter of 2026.» This projection considers «the more favorable behavior of certain cost factors,» in a context where «the risks to inflation convergence have diminished.»

Central Bank’s Commitment to Flexibility in Monetary Policy

The statement establishes that the Council «will evaluate future movements of the TPM based on the evolution of the macroeconomic scenario and its implications for inflation convergence.»

Moreover, the Central Bank reaffirmed its commitment to conducting monetary policy flexibly, ensuring projected inflation remains at 3% over the two-year horizon.»

The details of the discussions that led to this unanimous decision will be made public with the release of the RPM minutes on Monday, January 5, 2026, at 8:30 AM, while the next Council meeting to determine the TPM is scheduled for January 26 and 27, 2026.