The Central Bank of Chile held its benchmark interest rate at 2.50 percent on May 3rd 2018, in line with market expectations. Policymakers said that inflation is seen low during most of 2018, to then advance more robustly toward the target during next year. The central bank expects to keep the monetary stimulus at its current level until inflation converges towards 3 percent. In March, the inflation eased to 1.8 percent from 2 percent in February.
Excerpts from the Central Bank of Chile Press Release:
The latest data on activity and demand are consistent with the baseline scenario of the March Report. First-quarter growth in activity was significantly influenced by the increase in mining, favored by the low basis for comparison. Activity in the other sectors maintained the better performance of previous months, where worth highlighting was the greater contribution of several investment-related sectors. Investment in construction and other works continues to recover, while exports continue to grow in the main areas, consumer and business confidence are still in optimistic levels and financial conditions are comfortable. However, private salaried employment has yet to recover and nominal wages have decelerated in annual terms, which could take a toll on wage mass growth and possibly on consumption. The Economic Expectations Survey (EES) of April showed no major changes in expected growth for this year and next, both somewhat above 3.5%.
Annual CPI inflation declined to 1.8% in March, while core inflation—the CPIEFE—was again 1.6%, with minor differences with the last Report’s estimates. Its evolution, as has been the trend of the last few quarters, continues to be driven by the appreciation of the peso, the current state of capacity gaps and indexation to lower inflation rates. Y-o-y change in CPIEFE for goods persists in slightly negative ground, and for services it remains near 3%. Inflation expectations showed no significant changes. Accordingly, expectations one year ahead as measured by analysts’ surveys stand between 2.5% and 2.7% and two years ahead, between 2.8% and 3.0%.
The Board’s decision considered that inflation will remain low during the better part of 2018, to then advance more robustly toward the target during next year, consistently with a gradual closure of capacity gaps. The Board foresees that it will keep the monetary stimulus at its current level until macroeconomic conditions tend to consolidate the convergence of inflation towards 3%. The persistence of inflation at low levels, especially its core component, means that the risks of not achieving the target within the policy horizon remain, a situation that will continue to be monitored with special care. Thus, the Board reaffirms its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the two-year policy horizon.
5/3/2018 9:27:17 PM