Chile Central Bank Governor Affirms Inflation Alignment with Predictions, Anticipates Convergence

Following a faster-than-expected increase in inflation, Chile’s central bank governor, Rosanna Costa, stated that inflation remains in line with the bank’s predictions. She highlighted that there are temporary price pressures affecting certain expenses, leading to a slight rise in the bank’s projected inflation rate for the year. However, she added that inflation is anticipated to converge with the desired target within the following two years. Costa also noted that the central bank intends to maintain economic stability during this period to prevent sudden changes in interest rates. The bank has already reduced borrowing costs by 475 basis points since July, most recently lowering them to 6.5%. Economists and investors anticipate the central bank will reduce interest rates by half a percentage point during its upcoming policy meeting scheduled for May 23, marking the second successive decrease in the easing cycle. This follows the previous decision made by the majority of board members to cut borrowing costs by half a percentage point in their last meeting. The central banker expressed concerns regarding Colombia’s difficulty in expediting its rate-cutting cycle due to persistently elevated inflation levels. Although the Colombian central bank’s board members have consented to reducing interest rates, they are divided over the pace of the adjustment. Governor Leonardo Villar warned against hastening the process too quickly as it might result in impediments to future reductions in inflation and interest rates. Consumer prices in Colombia are projected to slow in May, as indicated by preliminary data released by DANE, the national statistics agency. The core inflation rate, which is viewed as a better indicator of underlying price trends, is predicted to decline from 0.4% to 0.3% in April, while the overall index is estimated to increase by 3.4% compared to the same month in the prior year. In contrast, several US Federal Reserve officials have voiced their opinion that interest rates may need to remain elevated for extended periods, as recent inflation figures suggest that further rate decreases should not be anticipated in 2024.