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Chile Central Bank Stuns Market With a Half-Point Rate Cut

  • Recovery not enough to close output gap, fuel inflation
  • First-quarter data confirmed lower-than-expected growth
Pedestrians pass in front of the Central Bank of Chile in downtown Santiago, Chile.

Pedestrians pass in front of the Central Bank of Chile in downtown Santiago, Chile.

Photographer: Cristobal Olivares/Bloomberg
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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 fueling inflation.

Policy makers reduced the benchmark rate to 2.5%, 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.