Both central banks expected to refrain from hiking rates further this month

Global capital market watchers like Fitch Solutions are closely monitoring the decisions of the monetary policy committees of the Banco Central de Chile (BCC) and Banco Central de Reserva del Perú (BCRP) regarding interest rates.

Both central banks are expected to refrain from hiking beyond their current rates of 11.25 per cent and 7.25 per cent, respectively, as headline inflation moderates and inflation expectations fall. However, Chile is the only market in the region where core inflation has also notably eased from 11.1 per cent year-over-year in September to 10.8 per cent in October.

This movement in inflation underscores Fitch’s view that the 1,075 basis points (bps) worth of hikes the BCC has enacted since July 2021 are beginning to temper price pressures.

In addition, Fitch, the international credit ratings agency estimates a softening in the growth outlook for Chile with a contraction of 0.8 per cent estimated in 2023 – reinforcing the view that the BCC will opt not to hike further to prevent a deeper decline in activity.

For Peru, Fitch expects that the BCRP will hold rates at 7.25 per cent at its December 7 meeting, a 21-year high. Notably, after hiking by 700bps since August 2021, one-year forward inflation expectations have continued to tick down, reaching 4.8 per cent in October.

Consequently, as inflation expectations fall nearer to the BCRP’s 1.0 per cent – 3.0 per cent inflation target, Fitch expects the BCRP will refrain from hiking further and hold its interest rate at 7.25 per cent through H1 2023.