Statement from the Central Bank of Chile:
Internationally, incoming data point to growth moderating in the world economy beyond forecasts, accompanied by volatile financial markets and persistent political and economic risks. In the developed world, economic expectations have deteriorated. Conjunctural Eurozone growth data again brought negative surprises, while China's activity indicators moderated further, prompting its authorities to announce new stimuli. Meanwhile, recent US data remains dynamic. Inflation slowed in most countries as a result of the drop in oil prices in the last quarter of 2018.
In this context, the main central banks have signaled a more gradual normalization of their monetary policies, which market prices have internalized. Long-term interest rates have fallen in several economies, stock markets have risen from end-of-2018 levels and capital flows have returned to emerging countries. The oil price has recovered partially in 2019 so far, while copper has fluctuated around USD 2.7 per pound.
Regarding local financial conditions, the peso continued to fluctuate significantly, but its current value in terms of US dollars shows little variation from the last Meeting. This, in a context in which the local risk indicators remain contained, interest rates have fallen slightly to converge with the global trend, while the stock market (IPSA) has aligned with the increases in Latin American stock markets. In the credit market, annual credit growth accelerated towards the end of 2018, especially in consumer and commercial loans. Interest rates remain low from a historical perspective.
December’s monthly inflation was negative (-0.1%), affected mainly by a drop in the more volatile items (i.e. energy and foodstuffs). With this, in y-o-y terms, CPI inflation was 2.6% and for CPIEFE was 2.3%, both figures slightly below the December Report’s estimates. Those prices most sensitive to the activity gap, including unregulated services in the CPIEFE, continued to rise steadily. Inflation expectations for December 2019 declined to 2.8%, while expectations two years out remain around 3%.
The Board’s decision considered that the evolution of macroeconomic conditions continues to warrant a gradual withdrawal of the monetary stimulus, in line with what was foreseen in the last Monetary Policy Report. At the same time, it reiterated that it will proceed with this process gradually and cautiously. In particular, the next Monetary Policy Report will pay special attention to the evolution of the international scenario and its implications for the convergence of inflation to the target. Accordingly, the Board reaffirms its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the two-year horizon.