Chile: Central Bank resumes tightening cycle in January
January 30, 2019
At its 30 January monetary policy meeting, the board of the Central Bank of Chile (BCCh) voted unanimously to hike the key policy rate from 2.75% to 3.00%. The decision came in line with analysts’ expectations and was driven by upbeat domestic activity in the fourth quarter.
Although inflation closed the year further below the midpoint of the Bank’s 2.0%–4.0% target rate (December: 2.6%), an acceleration in non-mining activity prompted the board to resume its tightening cycle after a pause in December. The BCCh remarked that regained dynamism in investment-related sectors, particularly in capital goods imports and construction, allows for a “gradual withdrawal” of monetary stimulus. The board’s tightening came against the backdrop of a relaxation in monetary policy in the world’s biggest economies.
In its communiqué, the BCCh signaled that further policy tightening was still on the cards, albeit at a more gradual pace as the economy adjusts to a more volatile global economy. The board will pay heed to changes in monetary policy abroad, as it moves towards a neutral policy that encourages inflation to converge at the target rate of 3.0%. Analysts expect the board to keep rates unchanged at the next monetary policy meeting scheduled for 29 March.
Author: Nicolás J. Aguilar, Economist