The Monetary Policy Group of the University of Chile recommended maintaining the rate at 4.5% in light of the escalation of the conflict in the Middle East, rising oil prices, and new US tariffs. June inflation rose to 4.3%, above expectations.
The Monetary Policy Group (GPM) of the Faculty of Economics and Business at the University of Chile recommended on Monday to keep the monetary policy rate at 4.5%, in a context of growing geopolitical tension and a deteriorating external scenario. The decision aims to support the convergence of inflation towards the 3% target over a two-year horizon.
The body, composed of Eugenia Andreasen, Carlos Budnevich, Humberto Martínez, Juan Pablo Medina, and Andrea Tokman, based its position on the escalation of the conflict between the United States and Iran, the implementation of new US tariffs, and the weak performance of the Chilean economy.
Humberto Martínez, representing the GPM, explained that the external scenario deteriorated significantly during July.
“The escalation of the conflict in the Middle East has raised international oil prices, tightened global financial conditions, and increased geopolitical uncertainty. Additionally, new US tariffs of up to 12.5% on 60 countries, including Chile, have come into effect,” he stated.
The price of Brent crude oil exceeded 100 dollars per barrel in mid-July, although by the close on Friday the 24th it had retreated to 96 dollars. West Texas Intermediate (WTI) stood at 89 dollars. Futures for December 2026 closed at 86 and 79 dollars, respectively.
In trade, the United States raised the tariff on imports from 60 trading partners, including Chile, to 12.5% on July 24, replacing the previous interim rate of 10%. Unlike the previous one, the new tariff has no expiration limit.
International financial conditions have also tightened. The yield on the 10-year US Treasury bond closed last week at 4.7%, the highest level during President Trump's administration. The DXY index showed a global strengthening of the dollar by 1.9% since mid-June. In Chile, the peso closed at 946 units per dollar, its most depreciated level since November 2025.
Locally, economic activity and the labour market continue to show little dynamism. The annual inflation for June rose to 4.3%, up from 3.9% in May, while core inflation increased from 3.2% to 3.4%. The labour market recorded an unemployment rate of 9.4% for the March-May quarter, the highest since June 2021.
Economic activity has accumulated five consecutive months of declines, mainly explained by an 11.6% drop in mining production. Non-mining Imacec grew by 0.7% in May, marking its third consecutive month of expansion.
Despite the poor results in activity and employment, the GPM chose not to cut the rate. Martínez explained that
“the recent increase in oil prices could generate inflationary pressures in the short term and reopen uncertainty about its second-round effects on core inflation.”He added that, although two-year expectations remain anchored around the target, “there is high uncertainty regarding the duration and magnitude of the energy shock.”
Both the Federal Reserve and the European Central Bank kept their reference rates unchanged in their latest meetings. According to CME Group's FedWatch, as of July 24, the market assigned an over 80% probability to a first rate hike by the Fed in September. ECB President Christine Lagarde noted that some council members considered a rate increase.
For investors and analysts, the GPM's recommendation reinforces the expectation that the Central Bank of Chile will maintain a cautious stance in the coming months, awaiting the dissipation of external pressures and the consolidation of internal activity recovery. The next monetary policy meeting of the Central Bank will be key to confirming whether this recommendation is followed.
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