Chile Keeps Interest Rate at 2.50%

The Central Bank of Chile held its benchmark interest rate at 2.50 percent on 20 March 2018, as widely expected, saying risks to the economic activity have receded since last meeting and that lower commodity prices and little change in the peso have contributed to a stable inflation outlook. Consumer prices in Chile increased 2.0 percent in February of 2018, easing from a 2.2 percent gain in the previous month.

Statement from the Central Bank of Chile:

Internationally, the relevant scenario for the Chilean economy has continued to improve, adjusting to greater prospects for global growth, mainly in the developed world. In the United States, there is also the boost to demand associated with the tax reform approved by Congress. Inflation has remained contained in much of the developed world, although it is worth noting that some countries have revised upwards their forecasts for 2018. In the US, actual and projected data on activity and inflation have driven up the expected Fed funds rate. The discussion on the normalization of the monetary impulse in other developed economies has also taken shape.

In the global financial markets, the increase in volatility and the sharp correction in the prices of risky assets in early February stood out. Although financial conditions remain favorable, the main stock markets have not recovered their previous levels. The improved growth outlook has favored the rise of long rates, especially in the US and, to a lesser extent, in other developed countries. In the emerging world, especially in Latin America, the evolution of risk premiums, stock markets, volatility indicators and capital flows to their economies remains positive.

Commodity prices have fallen since the last Meeting. The oil price dropped somewhat more than 6%, owing mainly to news pointing to better supply-side conditions. In turn, the copper price, with fluctuations during the period, posted a drop around 2%. However, the two prices are still above their year-ago levels and their averages foreseen at the end of 2017.

Inflation has performed as expected, remaining around 2% annually for headline inflation and close to 1.5% for its core measure CPIEFE. As has been the trend in recent quarters, the inflationary dynamic has been dominated by the appreciation of  the peso over the period. Annual inflation of the goods in the CPIEFE basket is in slightly negative figures, while that of the services component has gradually decreased over the last year and stands near 3%. Inflation expectations showed limited movements. While the short-term expectations have adjusted downward somewhat, at two years they show no big changes from the data analyzed in the last Meeting.

The Board's decision considered that both the latest data and the analysis contained in the March Report suggest that the risks for the convergence of inflation to 3% have moderated in the policy horizon, largely due to the implications that the better economic outlook has on the process of closing the capacity gaps. However, the evolution of the exchange rate in the coming months will cause inflation to be lower than expected in December, a situation that the Board will continue to monitor with special care, considering that it might jeopardize the convergence of inflation to the target over the policy horizon. Likewise, the Board reiterates its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the two-year horizon. 

Chile Keeps Interest Rate at 2.50%

Mario |
3/20/2018 9:28:02 PM