Chile Monetary Policy May 2016

Chile

Chile: Central Bank keeps rate at 3.50% in May

May 17, 2016

At its meeting on 17 May, 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 last rate hike of 25 basis points in December. The decision to maintain the current policy rate came amid background of above-target inflation and mixed economic data.

Regarding the international environment, the BCCH noted that financial markets have remained fairly calm recently, but that some risks persist. The Bank added that most currencies have tended to depreciate against the U.S. dollar recently and that prices for most commodities rose compared to April, although the copper price was an exception. Moreover, the global growth outlook stayed broadly stable, even though projections for the U.S. economy weakened somewhat.

As for Chile, the Bank stated that inflation was 4.2% in April and the BCCH projects that it will remain above 4.0% for the next months before declining gradually to 3.0% in the next two years. Data on the domestic economy have been a mixed bag lately. In Q1, GDP growth was stronger than previously expected, but economic sentiment remained depressed and the labor market weakened.

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 the pace of potential future rate hikes will depend on incoming economic data and its impact on inflation. The next monetary policy meeting is scheduled for 16 June.

Panelists participating in the LatinFocus Consensus Forecast see the policy rate at 3.65% at the end of 2016. Panelists expect the policy rate to end 2017 at 4.01%.


Author: Teresa Kersting, Economist

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Chile Monetary Policy Chart


Chile Monetary Policy June 2016

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


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