Chile: Central Bank holds rates steady in February
February 1, 2018
At its monetary policy meeting ending on 1 February, the Central Bank of Chile (BCC) unanimously opted to leave the policy rate unchanged at 2.50% for the eighth consecutive meeting. The decision was in line with market expectations. Consequently, the Bank maintained its loose monetary stance, with the policy rate in Chile currently the lowest of any country in Latin America.
The Bank’s decision came as both headline and underlying inflation continue to hover close to the Bank’s lower tolerance band of 2.0%. In addition, the BCC’s January survey showed that inflation expectations over the next two years were unchanged from the prior month, remaining well anchored at 3.0%. On the demand side, the economy has performed well in recent months, with IMACEC (economic activity) readings for November and December handsomely beating market expectations, aided by a more robust non-mining sector. The Bank also highlighted the better-than-anticipated performance of investment in Q4, and wage growth buttressing private consumption—although comprehensive national accounts figures for the quarter have yet to be released. With inflation showing few surprises, and the economy gaining traction, the Bank opted to stay put.
In its communiqué, the BCC judged that notwithstanding the recent appreciation of the peso—which could dampen price pressures in the short term—the risk of inflation failing to return to target had fallen thanks to healthy economic activity. The BCC was keen to stress that monetary tightening would only start once slack in the economy had lessened, and it left the door open to a further rate cut if the situation warranted it. FocusEconomics panelists largely concur, and expect modest monetary tightening to resume towards the end of this year as growth improves and inflation gradually picks up.
Author: Oliver Reynolds, Economist