Chile: Central Bank unexpectedly slashes policy rate in June
June 7, 2019
At its 7 June monetary policy meeting, the board of the Central Bank of Chile (BCCh) voted unanimously to cut the key policy rate by 50 basis points to 2.50%, marking the sharpest reduction in a decade, amid softer-than-expected inflation and lackluster growth in the first quarter. The decision surprised analysts, who had expected the rate to remain unchanged.
Weaker-than-expected first-quarter national accounts data, which revealed that the current rate of growth had dragged on price pressures since the start of the year, prompted the decision to lower rates. Moreover, the board remarked that a more challenging external backdrop tilted risks to the downside, thus requiring a more expansive monetary policy to buffer any slowdown and ensure that inflation converges at the 3.0% target level in the near-term.
Looking ahead, the board struck a largely wait-and-see approach, stating that “if the baseline scenario materializes, this change in the MPR will suffice to ensure the convergence of inflation to the target”. It also remarked that it intends to tighten the policy rate when there are more clear signs that inflation is on track to reach its target. Notably, it will continue to evaluate the effects of immigration on the labor market, the response from investment and the impact of the U.S.-China trade spat on external demand.
The next monetary policy meeting is scheduled for 17-18 July.
Author: Nicolás J. Aguilar, Economist