Banco Central de Chile's board unanimously voted to cut the monetary policy rate by 50 basis points to 2.0% and signaled that it could ease policy further amid worsening economic and political conditions abroad.
The rate cut was stronger than market expectations of "a more cautious" 25-basis-point cut, according to Felipe Camargo of Oxford Economics. Camargo expects the central bank to again cut rates by 25 basis points in October and maintain its key rate at 1.75% until 2020-end.
"The board's decision considers that the economy's performance of the second quarter and its outlook indicate that inflation will take longer to converge to the target, calling for a stronger monetary stimulus," the central bank said in its monetary policy statement. It added that further stimulus "might be required," depending on developments in the macroeconomic scenario.
The Chilean economy grew 0.8% in the second quarter from the prior three-month period on a seasonally adjusted basis. Annual inflation in the country remains around 2%, compared with the central bank's target of 3%.
Meanwhile, the Chilean peso continues to depreciate, having fallen 4.3% to 725.76 per dollar year-to-date.
The central bank noted the adverse impact of the recent escalation in the U.S.-China trade war on economies that are integrated in the value chains and financial markets, and on global trade volumes. A number of other central banks across Latin America have already eased their respective monetary policies in a bid to increase stimulus amid economic growth concerns.
