Chile: Central Bank reduces rates in January
January 19, 2017
At its 19 January policy meeting, the Central Bank of Chile (BCC) decided to reduce the policy rate from 3.50% to 3.25%, the first rate change in over a year. The decision was reached due to inflation in December dropping below the Bank’s 3.0% target, while economic activity remained subdued.
Regarding the domestic economy, the BCC highlighted that recent data showed that growth has remained sluggish in recent months, with the primary sector in particular struggling. According to the Bank, internal demand grew at the same sedentary pace seen in previous quarters, while labor market tendencies were unchanged and inflation in December came in below expectations at 2.7%. Although inflation is forecast to return to target over the medium term, for the next few months the BCC expects inflation towards the bottom end of its 2.0%-4.0% target range. The Bank also mentioned that long-term interest rates on the country’s government bonds have fallen back to the level they were at before the U.S. election.
On the international front, the BCC commented that global financial conditions have improved, with higher asset prices in emerging markets and a recovery in copper and oil prices. According to the Bank, although economic activity in the developed world has strengthened, growth in Latin America has slowed. The Bank ended its report by reiterating last month’s statement that it stands ready to loosen monetary policy further if domestic economic conditions so require, while simultaneously aiming to reach the 3.0% inflation target over the medium term.
Author: Oliver Reynolds, Economist