Thursday, December 17, 2015

Chile raises rate 25 bps, inflation seen accelerating again

    Chile's central bank raised its monetary policy rate by a further 25 basis points to 3.50 percent, saying inflation is shortly expected to exceed 4.0 percent again and the U.S. Federal Reserve's interest rate increase had not caused any "immediate disruption in the global financial markets."
    The Central Bank of Chile, which has now raised its rate by 50 basis points following an initial increase in October, added that it would consider further "measured" changes to monetary policy to ensure that inflation converges towards its medium-term target of 3.0 percent.
    Chile's inflation rate eased to 3.9 percent in November from 4.0 percent in October and a 2015 high of 5.0 percent in August. The central bank targets inflation of 3.0 percent, plus/minus 1 percentage point.
    But the central bank said core inflation was still close to 5.0 percent while inflation expectations two years out remain at 3.0 percent. Core inflation in October was 5.1 percent.
    Chile's peso has been depreciating since early 2013 and was trading at 707 to the U.S. dollar today, slightly up from earlier this week, but down 14 percent since the start of this year.
    The central bank also said partial data for the fourth quarter continue to show limited growth in domestic output and demand, and confidence remains pessimistic while job creation and wage growth remain dynamic.
    Chile's Gross Domestic Product expanded by an annual 2.2 percent in the third quarter, up from 1.9 percent in the second quarter.

    The Central Bank of Chile released the following statement:

"In its monthly monetary policy meeting, the Board of the Central Bank of Chile decided to raise the monetary policy interest rate by 25 basis points, to 3.5%.

The external scenario continues to show a deterioration of emerging economies, largely due to a relapse of commodity prices and not-so-favorable global financial conditions. The world economic outlook posted no major change from last month, although lately the global growth forecast has been reduced. The Federal Reserve increased the policy rate, causing no immediate disruption in the global financial markets.

On the domestic front, annual CPI inflation declined to 3.9%, but is expected to again exceed 4% shortly. Core inflation the CPIEFEis still close to 5% y-o-y. Meanwhile, inflation expectations two years out remain at 3%. The evolution of these variables will continue to be monitored with speciall attention. Partial fourth-quarter data continue to show limited growth in domestic output and demand. Confidence indicators remain in pessimistic territory. Job creation and wage growth are still dynamic.

The future path of the monetary policy rate considers measured adjustments aimed to ensure the convergence of inflation to the target, at a pace that will depend on incoming information and its implications on inflation. The Board reiterates its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the policy horizon."


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