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Chile Monetary Policy January 2020

Chile: Central Bank stands pat in January

At its meeting ending 29 January, the board of the Central Bank of Chile (BCCh) unanimously decided to keep the monetary policy rate at 1.75%, as it seeks to preserve an expansionary stance to support the country’s stunted economy in the aftermath of months of protests. Most market analysts had expected the Bank to stand pat.

The decision reflected the need to balance an uncertain inflationary backdrop with wavering economic activity. Although inflation reached the 3.0% target in December, price pressures were less pronounced than what the Bank had expected in its previous December meeting. While the sharp depreciation of the peso since October has put upward pressure on prices, faltering household consumption limited the upturn.

In the forward-looking guidance, the Bank maintained its wait-and-see approach. This was line with the scenario presented in the previous meeting in December, when it was noted that the key policy rate is likely to remain unchanged for the next few months. This scenario projected inflation to hover above the 3.0% target this year as prolonged currency weakness will stoke prices. Moreover, heightened uncertainties stemming from protracted protests and the proposed rewriting of the constitution are likely to persist and pose upside risks to the inflation outlook.

The next monetary policy meeting is scheduled for 31 March.

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