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Chile Monetary Policy June 2018

Chile: Central Bank leaves policy rate unchanged in June

At its monetary policy meeting ending on 13 June, the board of the Central Bank of Chile (BCC) unanimously voted to hold the policy rate stable at 2.50% for the eleventh consecutive meeting, in line with market expectations. In turn, the monetary policy environment in Chile remains among the most accommodative in Latin America.

The Bank’s decision came on the back of subdued headline inflation, which came in at 2.0% in May (April: 1.9%), just reaching the lower bound of the Central Bank’s 2.0%–4.0% target, after falling below the lower bound in March and April. Meanwhile, core inflation remained stable at 1.7% for the fourth consecutive month in May. According to the policy statement, due to higher oil prices and the depreciation of the peso, short- to medium-term inflation expectations increased somewhat in recent months, reaching 3.0% for both the one- and two-year horizon. Nevertheless, expectations remain well-anchored around the middle of the Bank’s target range.

In its communiqué, the Bank stated that the current monetary policy stance should be maintained in the short term, and the stimulus measures will be gradually pulled back as macroeconomic conditions drive inflation towards 3.0%. Moreover, the Bank sees slightly increased upside risks to the inflation forecast as oil prices—especially as measured in pesos, given the ongoing depreciation against the dollar in recent months—continue to increase, and a strong economic recovery seems well underway. Nevertheless, the BCC is likely to stay put in the short term given the current climate, before gradually increasing rates as inflationary pressures intensify. The majority of our panelists expect the rate to remain at 2.50% throughout the third quarter, and they forecast a rate hike in the last quarter of the year.

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