Chile Leaves Key Rate Unchanged at 3.5%

The Central Bank of Chile kept its benchmark interest rate on hold at 3.5 percent on May 17th as widely expected, saying global economic and financial developments continue to pose risks. Policymakers also said the inflation rate will remain above 4 percent in the short term while expectations for the next two years remain at 3 percent. The bank has held the rate steady since raising it 25 bps in December, aiming to bring inflation back to target.

Statement by the Central Bank of Chile:

International financial markets are on a similar path to that of previous months. In spite of this, risks remain. Lately, while differing in magnitude, currencies have tended to depreciate with respect to the dollar. Forecasts for world growth do not show significant changes, although forecasts for the United States have been revised downward. Comodity prices rose from last month, with some exceptions, including copper.

On the domestic front, in April CPI inflation was 4.2% annually. Projections suggest that it will remain above 4% for some months. Inflation expectations two years out remain at 3%. The evolution of these variables will continue to be monitored with special attention. In the first quarter, economic activity outperformed estimates in the March Monetary Policy Report; however, confidence indicators are still in pessimistic territory and the labor market experienced a sharper deterioration. The pace of annual wage growth showed no variation.

The Board estimates that, to ensure the convergence of inflation to the target, monetary policy will need to continue to normalize, at a pace that will depend on incoming information and its implications on inflation projections. The Board reiterates its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the policy horizon.

Chile Leaves Key Rate Unchanged at 3.5%

Central Bank of Chile | Joana Ferreira |
5/17/2016 11:23:40 PM