Chile stuns market with a half-point rate cut

Bloomberg

Chile’s central bank stunned analysts by cutting its key interest rate by 50 basis points, the biggest reduction in a decade, saying the economy could grow faster without
fuelling inflation.
Policy makers reduced the benchmark rate to 2.5 percent, surprising all 18 economists surveyed by Bloomberg. The analysts had expected borrowing costs to be left unchanged. The bank is famed as one of the most predictable in Latin America.
Growth has remained weak in the first four months of the year, even as a flood of immigrants into the country from Venezuela has increased its potential growth rate — the pace at which the economy can expand without fueling inflation, the bank said. At the same time, the US-China trade conflict has undermined global growth, cutting the price of Chile’s copper exports, it said in a statement accompanying the decision.
“Wow! Almost no-one expected that,” said Rafael de la Fuente, chief Latin American economist at UBS AG in New York. “Growth is weaker and potential growth is higher so the output gap just got bigger. They’ve got more room.”