Chile's Inflation Unexpectedly Accelerates Despite Rate Cut

Chile's annual inflation unexpectedly accelerated to 4.3% in July, above all estimates. The central bank had cut the benchmark interest rate by a quarter-point to 4.75% in July and expects borrowing costs to approach the neutral range of 3.5% to 4.5% over coming quarters. Energy prices rose 3.2% on the month, while food and non-alcoholic beverage costs gained 0.9%. Policymakers expect inflation to return to the 3% target by the first half of next year.

In its latest earnings report for the second quarter of 2025, Banco de Chile posted a net income of CLP 654 billion, representing a 2% year-to-date growth. The bank's return on equity (ROE) stood at 21.9%, driven by robust customer income and cost efficiency [1].

The Chilean economy, which is projected to grow by 2.3% in 2025, has shown signs of recovery. However, loan growth remains subdued, with the loan-to-EBIT ratio at 77%, due to low consumer and business confidence, high interest rates, and weak investment activity [1]. Despite these challenges, Banco de Chile has maintained a net interest margin of 4.7% to 4.8%, supported by high-margin segments such as consumer loans and SME financing [1].

Operating expenses rose by 3% year-over-year, remaining below the inflation rate. The bank's efficiency level reached 36.4%, driven by digitalization and a reduction in branch networks, contributing to a more streamlined operating structure [1].

Key contradictions discussed in Banco de Chile's earnings call include balancing loan growth expectations, extraordinary dividends, and interest rate dynamics amid economic uncertainty [1]. The bank's capital position and net interest margin expectations also remain critical factors to watch.

In related news, Chile's annual inflation unexpectedly accelerated to 4.3% in July, above all estimates. The central bank had cut the benchmark interest rate by a quarter-point to 4.75% in July and expects borrowing costs to approach the neutral range of 3.5% to 4.5% over coming quarters [2]. Policymakers expect inflation to return to the 3% target by the first half of next year.

References:
[1] https://www.ainvest.com/news/banco-de-chile-q2-2025-key-contradictions-loan-growth-dividends-interest-rate-expectations-2508/
[2] https://www.centralbank.cl/