Chile Monetary Policy June 2016


Chile: Central Bank keeps rate at 3.50% in June

June 16, 2016

At its meeting on 16 June, the Central Bank of Chile (BCCH) decided to leave 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 maintain the current policy rate came within a background of above-target inflation and sluggish economic data for Q2.

Regarding the international environment, the BCCH noted that financial markets were volatile, partly because of the UK’s referendum on leaving the EU as well as uncertainty regarding the U.S. Federal Reserve Bank’s interest rate decision. The U.S. dollar has showed some fluctuations recently, but the month-on-month variation was broadly flat. Copper prices fell, while the prices of many other commodities increased. Despite increased volatility, the Bank sees the global growth outlook as broadly stable.

As for Chile, the Bank stated that inflation remained at 4.2% in May and sees it moderating in the medium term, dropping to 3.0% two years from now. In the Bank’s view, economic growth in the second quarter was likely weak, as suggested by output and demand indicators. Business and consumer sentiment remain pessimistic and data on the labor market was mixed.

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 soft 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 14 July.

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 June 2016 1

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

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