Lowering Our Uncertainty Rating for Banco de Chile as Inflation in Chile Continues to Fall

We are lowering our Morningstar Uncertainty Rating for Banco de Chile to Medium from High as economic risks in Chile fall with inflation. After reaching a peak of over 14% in 2022, inflation in Chile has fallen sharply, reaching 4.8% in November. While Banco de Chile did benefit from high inflation, due to a large portion of the bank’s assets being directly indexed to inflation, high interest rates have pressured its net interest margin in 2023 through higher cost of funding. With inflation now in the midsingle digits, there is room for the Chilean Central bank to continue to cut interest rates, removing this pressure on the bank’s results and raising prospects that Chile will manage a soft landing from inflation.