BofA sees Chile rates on hold at 4.5% through 2026

Bank of America expects Chile’s central bank to keep rates unchanged at 4.5% through year-end, with only two 25 bp hikes projected in 2027. Chile’s May inflation cooled to 0.2% m/m and 3.9% y/y, back within the 3% target range, while ex-volatile inflation eased to 3.2%. Economic activity remained flat quarter-over-quarter and unemployment rose to 9.1%, indicating a soft growth backdrop despite higher copper prices and earlier fuel shocks.

Analysis

Chile is signaling a classic disinflation-with-growth-scarcity setup: inflation is behaving better than activity, which keeps the policy path constrained even if the central bank would prefer to ease. That matters because the market is likely underestimating how sticky real rates can stay when unemployment is rising and output is flat; the bigger risk is not a sudden hawkish pivot, but a prolonged hold that keeps domestic demand and credit creation subdued for multiple quarters.

The second-order winner is not Chilean consumers so much as external exporters with pricing power into a slower-growth, lower-inflation economy. Copper-linked exposures are the cleaner beneficiary than broad Chile equities: if reforms and metals support do lift growth into 2027, the upside accrues first to miners, port/logistics volumes, and FX-sensitive balance sheets, while rate-sensitive domestic retail, banks, and construction lag.

The market may also be missing that the fuel shock appears to be washing through with limited second-round effects so far, which reduces the urgency for policy tightening but also caps the inflation-beta trade. That creates a window where local duration can rally on soft data, but the asymmetry fades fast if imported energy reaccelerates or if labor weakness turns into a wage spiral. The key catalyst over the next 1-3 months is whether activity data confirms stagnation; over 6-12 months, the decisive variable is copper and China demand, not headline inflation prints.

Contrarian view: the consensus may be too complacent on how long 4.5% can remain restrictive in a weak-growth environment. If inflation stays near target while unemployment keeps drifting higher, the central bank could be forced into earlier easing than BofA expects, which would re-rate local financials and housing-sensitive names quickly.

Key Decisions for Investors

• Long CLP duration via local sovereign bonds or receive-fix Chile IRS for 3-6 months; risk/reward favors a slow-burn rally if the policy hold extends and activity stays flat. Stop if next 1-2 inflation prints reaccelerate above 0.4% m/m or energy spillovers broaden.
• Relative value: long copper miners / short Chile domestic cyclicals over 6-12 months. Prefer FCX or global copper proxies versus Chilean banks, retailers, and homebuilders; the upside is that metals and FX tailwinds show up before domestic demand recovers.
• Long USD/short CLP on rally fades only if copper weakens materially; otherwise maintain a tactical bearish USDCLP view into the next two CPI releases. The trade loses if the central bank signals faster easing than expected, so keep tight risk around policy meetings.
• Sell downside protection on Chilean rate-sensitive equities for 1-2 quarters only if liquidity is available and valuation is depressed; the thesis is that the market has already priced a lot of bad growth. Exit if unemployment rises another 50-75 bps or if fuel prices reaccelerate.