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Chile Monetary Policy May 2021

Chile: Central Bank holds its ground in May

At its 12–13 May meeting, the board of the Central Bank of Chile unanimously decided to keep the monetary policy rate unchanged at 0.50%, its lowest point since 2009. The decision matched market analysts’ expectations and included the continuation of unconventional liquidity measures to sustain the recovery.

Although both headline and core inflation averaged around 3.0% in March–April and the Bank noted the economy was performing better than previously expected, it decided to continue its ultra-loose monetary policy stance in order to keep inflation close to the 3.0% target over the policy horizon.

Moving forward, the Bank stated its intention to maintain the policy rate at 0.50% “for as long as it is deemed necessary for the recovery of the economy to take hold”. However, this appeared to be a slightly more hawkish tone compared to the previous meeting in March, as the Bank dropped both a timing reference and an additional condition for moving away from its current ultra-loose stance.

Commenting on the Central Bank’s decision, Diego W. Pereira and Lucila Barbeito, economists at JPMorgan, stated:

“We entertain the monetary policy rate at 1.0% by year-end. We believe the CBC will prioritize gradualism when it comes to the policy rate path ahead, which argues for starting the cycle earlier rather than permitting substantial deviations of inflation expectations from target. […] This strategy would be consistent with the policy rate at 2.0% by end-2022. Granted, scenarios of heightened and persistent political premium and/or a shift in the Fed stance could force the Central Bank to exit negative real rates quicker than envisioned.”

The next monetary policy meeting is scheduled for 8 June.

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