Chile: Central Bank stays put in March
March 30, 2019
At its 30 March monetary policy meeting, the Board of the Central Bank of Chile (BCCh) voted unanimously to leave the key policy rate unchanged at 3.00%, amid weaker-than-expected inflation. The decision was in line with analysts’ expectations and came on the heels of a rate hike in the previous meeting in January.
In its communiqué, the Board remarked that inflation slipped below the Bank’s 1.0 plus or minus 3.0 percentage point tolerance range in January. Although a change in the methodology for calculating inflation was partly to blame, macro fundamentals were also at play. Notably, unexpected weakening of the U.S. dollar in the first two months of the year contributed to a softer pass-through effect, thus putting a lid on inflation through lower import prices. In addition, the Board highlighted that increased competition in some markets also limited price pressures.
Looking ahead, the Bank remains committed to further monetary tightening in “the medium term” as it continues moving towards a neutral key rate, which it estimates at 4.00%-4.50%. The normalization period should take longer that previously estimated, however, as additional monetary stimulus is required to stir sluggish price pressures. In turn, the Bank now expects inflation to end the year at 2.6% and to converge at the 3.0% target in the first half of 2020.
The next monetary policy meeting is scheduled for 9 May.
Author: Nicolás J. Aguilar, Economist