Chile Keeps Interest Rate At 2.5% And Drops Bias

Chile’s central bank kept the benchmark interest rate unchanged at 2.50 percent in its June 15th, 2017 meeting following a 25 bps cut in its May 18th meeting. The outcome matched consensus expectations, and leaves the interest standing at its lowest level since September of 2010. Policymakers reiterated that mining and construction activity remains soft, and that inflation (currently at 2.6 percent year-on-year) is expected to remain on target. Members of the board did not mention this time around if the room for further easing remains open.
Mario | 6/15/2017 10:15:53 PM
Chile's consumer prices increased 2.6 percent year-on-year in May of 2017, easing from a 2.7 percent rise in the previous month. It is the lowest inflation rate since November 2013, as cost slowed significantly for food and non-alcoholic beverages (2.6 percent vs 4.2 percent in April). Annual core inflation rose by 2.2 percent, at the same pace as Annual core inflation advanced 2.5 percent, after standing at 2.2 percent for the months (the lowest since November of 2013). The central bank predicts year-end inflation of 2.7 percent in 2017.

In its March quarterly inflation report, the central bank lowered GDP estimates, while leaving unchanged inflation forecasts, suggesting that a more accommodative monetary stance may be expected this year. However, the central bank dropped its bias on this occasion.

Statement by the Central Bank of Chile:

Internationally, indicators continue to show favorable financial conditions and a scenario of gradual economic recovery in the main developed countries, as described in the latest Monetary Policy Report. Commodity prices show mixed fluctuations, where the drop in the prices of oil and derivatives stands out.

On the domestic front, annual inflation stood at 2.6% and inflation expectations at the end of the projection horizon remain near the target. Partial second-quarter figures for activity and demand are consistent with forecasts, and reflect the negative impact of mining and construction. Private consumption remains stable, in line with the performance of the labor market.

The Board reiterates its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the policy horizon. Any future changes in the monetary policy rate will depend on the implications of domestic and external macroeconomic conditions on the inflationary outlook.

Chile Keeps Interest Rate At 2.5% And Drops Bias