Chile Monetary Policy July 2016


Chile: Central Bank keeps rate at 3.50% in July

July 14, 2016

At its meeting on 14 July, the Central Bank of Chile (BCCH) kept the policy rate unchanged at 3.50%, where it has been resting since the Bank’s December rate hike of 25 basis points. The decision to leave the policy rate at its current level came against a backdrop of above-target inflation and economic weakness in Q2.

Regarding the international environment, the BCCH highlighted the UK’s vote to leave the EU as a key event. Nevertheless, the Central Bank stated that the global growth outlook was broadly stable and that there are increasing expectations for monetary policy easing in the advanced economics. In the Bank’s view, risk appetite increased against that backdrop, leading to a decrease in long-term interest rates and the strengthening of emerging markets’ currencies. Regarding copper—Chile’s main export—the Bank noted that the prices had risen, whereas the prices of other commodities followed divergent directions.

As for Chile, the Bank stated that inflation exceeded expectations in June but that it is still forecast to moderate in the medium term, falling to 3.0% two years from now. In the Bank’s view, economic growth in the second quarter was likely “limited”, as suggested by output and demand indicators. Business and consumer sentiment remain pessimistic and data on the labor market was disappointing. Meanwhile, the Chilean peso appreciated.

In conclusion, the Bank stated that its monetary policy will remain focused on bringing inflation down to its 3.0% target. Moreover, the Bank maintained a tightening bias, highlighting that, “to ensure the convergence of inflation to the target, monetary policy will need to continue to normalize […]. Nonetheless, a significant deviation of inflation’s convergence may change said pace.” The next monetary policy meeting is scheduled for 11 August.

Panelists participating in the LatinFocus Consensus Forecast see the policy rate at 3.62% at the end of 2016. Panelists expect the policy rate to end 2017 at 3.96%.

Author: Teresa Kersting, Economist

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Chile Monetary Policy Chart

Chile Monetary Policy July 2016 0

Note: Monetary Policy Rate (TMP, Tasa de Politica Monetaria) in %
Source: Chile Central Bank (BCC)

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