Chile: Central Bank keeps the key policy rate stable in December
December 5, 2018
At its monetary policy meeting on 5 December, the board of the Central Bank of Chile (BCC) voted unanimously to hold the key policy rate unchanged at 2.75%. The Bank’s decision was in line with market expectations and came against the backdrop of slower growth in the third quarter and increased downward pressures on inflation.
Inflationary pressures moderated in the weeks preceding the Bank’s meeting, largely on the back of lower gasoline prices amid tanking global oil prices. Inflation slipped marginally below the midpoint of the Bank’s 2.0%–4.0% target range in October, to 2.9% (September: 3.1%), while core inflation—which excludes volatile components such as food and energy—also slowed. Meanwhile, despite slightly lower short-term inflation expectations due to plunging oil prices, the medium-term expectations of household inflation were broadly stable and remained anchored around the Bank’s target band.
In its communiqué the BCC also commented upon the real sector’s weak performance in Q3. The slowdown in Q3 was sharper than expected due to weak performances in the mining and manufacturing sectors, supporting the Bank’s decision to refrain from tightening its monetary policy stance in the last meeting of the year. Nevertheless, the Bank remained hawkish to ensure a smooth transition towards a neutral monetary policy while keeping inflation within the target range. In the statement the BCC described to its current monetary policy as “highly expansionary”, suggesting that a rate hike in the first quarter of 2019 is extremely likely.
The next monetary policy meeting is scheduled for 30 January.
Author: Almanas Stanapedis, Economist