Chile: Central Bank cuts policy rate to support growth
September 11, 2014
At its 11 September meeting, the Central Bank cut the policy rate by 25 basis points from 3.50% to 3.25%. The decision met market expectations. This is the third consecutive meeting since March in which the Bank has decided to cut its benchmark interest rate in order to support economic growth.
On the international front, the Bank stated that recent economic data confirm a positive outlook for the United States, while growth in Europe has lost pace. Regarding commodity prices, there has been a drop in prices of a majority of commodities, while the price of copper has been fairly stable.
However, local economic news suggests that the economy is losing momentum faster than expected mainly due to a noteworthy drop in investment and private consumption. Even so, the unemployment rate remains low and nominal wages are showing increasing annual growth rates. Regarding price developments, the Bank went on to say that annual inflation was stable at 4.5% in August and inflation expectations remain around 3.0% in the medium term. According to the Bank, “[t]he most likely scenario continues to assume that inflation will stay above the upper bound of the tolerance range still for some months, to later return to the target.” Jorge Selaive Carrasco, Head Economist at BBVA says:
As expected in Chile, the decision is in line with the weak activity figures and transitory elements behind the rise in inflation.[…] In this context, we still consider that future monetary policy decisions will remain data-dependent on short-term inflation figures; nonetheless we consider that further stimulus is likely to be necessary for the rest of the year.
Author: Dirina Mançellari, Senior Economist