BC maintains 4.5% rate due to Iran war shock, delays inflation target return to 2027

The Central Bank (BC) unanimously decided to maintain the Monetary Policy Rate at 4.5%, citing a significant external shock from the war in the Middle East, which has increased global uncertainty and driven up fuel prices. The BC now projects inflation will return to its target range only during 2027.

Key points

• The BC noted the war in the Middle East caused a significant shock due to the magnitude and speed of global fuel price increases.
• Inflation is expected to reach around 4% annually in the second quarter due to local price transmission from fuel hikes.
• The future evolution of the policy rate will be evaluated meeting by meeting.
• The BC reaffirmed its commitment to achieving a 3% inflation target within a two-year horizon, assuming current external shocks do not significantly persist.
• Global financial conditions have tightened, marked by rising interest rates, falling stock markets, and currency depreciations against the dollar.

Why it matters

The Central Bank's decision reflects significant concern over geopolitical instability impacting domestic inflation via oil prices, leading to a prolonged period before inflation returns to the official target.