Chile raises rate 5th time, significant risks to inflation

     Chile's central bank raised its policy interest rate for the fifth time, saying there are still significant risks of higher inflation as the most recent data on economic activity and inflation are somewhat above the latest forecast in December at the same time inflationary pressures from abroad have increased.
     The Central Bank of Chile (CBC) raised its monetary policy interest rate by 1.50 percentage points to 5.50 percent and has now raised it 5 percentage points since it began raising rates in July 2021.

     It is the first time in the current monetary tightening cycle CBC has raised its rate so sharply but minutes from its December meeting showed a 150 basis point rate hike had been considered before the board decided on a 125 point rate hike, as in October and December last year.

     The bank's board was once again unanimous in its decision although the current governor, Mario Marcel, did not participate after being picked last week as finance minister by Chile's President-elect Gabriel Boric.

     The departure of Marcel from comes only three months after he was named for a second 5-year term as governor of the central bank.

     "The risks for the evolution of inflation continue to be significant and its eventual materialization becomes especially relevant in a context in which both the annual variation of the CPI and its prospects are already high," CBC said, adding the decision was consistent with a rate trajectory that would be around the upper edge of the rate corridor outlined in the December policy report.

      In December the central bank raised its inflation forecast for 2021 to 6.9 percent from an earlier 5.7 percent and the 2022 forecast to 3.7 percent from 3.5 percent, and has said the policy interest rate would need to reach as much as 6 percent to curb inflation.

     Chile's inflation rate rose to a 2021-high of 7.2 percent in December, the highest since 2008 and more than twice the central bank's 3.0 percent target.

     Chile's economy has recovered swiftly from the COVID-19 pandemic and CBC said activity and demand was consistent with the upper range of its forecast for 2021.

      In December CBC raised its estimate of 2021 economic growth to between 11.5 and 12.0 percent with growth then seen slowing to 1.5 to 2.5 percent in 2022.

Chile raises rate 4th time and sees further increases

       Chile's central bank raised its key main interest rate for the fourth time and said it expects the rate will continue to be increased in the short term to above its neutral level to ensure inflation declines towards the bank's target of 3.0 percent.

      The Central Bank of Chile (CBC) raised its monetary policy interest rate (MPR) by 1.25 percentage points to 4.0 percent and has now raised it 3.50 percentage point this year following rate hikes in July, August, October and today.
      As in previous decisions, the bank's board was unanimous.

      Inflation in Chile rose for the 8th consecutive month to 6.7 percent in November from 6.0 percent in October - the highest rate since January 2009 - with CBC noting that volatile prices, especially of food and services, jumped 10.5 percent.

      Inflation expectations have also risen in recent months and although they point to an easing of inflation towards 2023, over the next two years they remain above the 3.0 percent target, CBC said, adding tomorrow's monetary policy report will include details of the inflation forecast and the outlook for MPR.

      As forecast in the bank's previous policy report from September, economic activity was dynamic in the third quarter as domestic demand grew more than expected, while investment in machinery and equipment also showed a high level while construction recovered from pre-pandemic levels.

      The monthly Imacec index of economic activity showed growth of 15 percent in October and CBC private expectations for growth this year have been raised to 11.9 percent from 11.0 percent.

     In the third quarter of this year Chile's gross domestic product grew 17.2 percent year-on-year, down from 18.1 percent in the second quarter.

     

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Chile raises rate 3rd time by more than expected

      Chile's central bank raised its key interest rate for the third time this year, and by more than expected for the second time, saying it expects the policy rate to reach a neutral level sooner than forecast as it needs to prevent a "more persistent increase in inflation" to above its target over the next 2 years.
      The Central Bank of Chile raised its monetary policy interest rate by 1.25 percentage points to 2.75 percent and has now raised it by a massive 2.25 percentage points in four months following earlier hikes in July and August.
      As in August, the bank's board was unanimous in its decision.
      Although the size of today's rate hike exceeded expectations, analysts had set their sights on a sharp rate hike following news inflation in September rose to a higher-than-expected 5.3 percent, the highest rate since November 2014 and up from 4.8 percent in August.
      On top of higher prices for food, transportation, housing and utilities, Chilean lawmakers are debating new pension withdrawals that could pump as much as $20 billion into the economy.

      The central bank said the rise in inflation reflected upward pressures on both the demand and cost side along with the deprecation of the peso.

      "In this context, inflation expectations have risen in all horizons," the bank said, adding expectations for this year now exceed 6 percent and two years ahead they are over 3.0 percent.

      Chile's economy has bounced back swiftly from the COVID-19 pandemic and in the second quarter the economy grew 18.1 percent year-on-year. 

      In September the central bank raised its forecast for growth this year to 10.5 percent to 11.5 percent from its earlier estimate of 8.5 percent to 9.5 percent.

       In its December monetary policy report the central bank said it would update its trajectory for the monetary policy rate to prevent the rise in inflation from topping its 3.0 percent target.

Chile raises rate more than expected to curb inflation

     Chile's central bank raised its benchmark interest rate for the second month in a row and by more than expected to prevent a persistent rise in inflation so it exceeds the bank's target in two years.

     The Central Bank of Chile's board raised its monetary policy interest rate by 75 basis points to 1.5 percent, higher than the 25 points expected by most economists, as the board said it had decided in a unanimous decision to "intensify the withdrawal of monetary stimulus."

     The central bank has now raised its policy rate by a total of 100 points this year following a 25-point hike in July, the bank's first rate hike in 2-1/2 years. 

     Last year Chile's central bank cut its policy interest rate twice during the month of March by a total of 1.25 percentage points and is now rapidly rolling back this easing in the face of booming consumption that has been unleashed by fiscal stimulus and early pension withdrawals.

     The bank's board said the monetary policy report, which will be published tomorrow, will reveal further details about the bank's forecast and risks along with the implications this has for the policy rate.

     Chile's inflation rate has been rising in the last five months and rose to 4.5 percent in July - well above the central bank's midpoint target of 3.0 percent - and the bank said short-term inflation expectations have risen and the survey of financial market participants showed inflation expectations in 2 years of up to 3.5 percent.

      In addition to a boom in consumption - retail sales in soared by an annual 66 percent in June and 72 percent in May - the central bank said investment had also surprised to the upside and the rise in wages is consisted with a growing shortage of manpower.

      The high growth in economic activity and the strong expansion in consumption practically closed the output gap in the second quarter and will turn positive in the future, raising the pressure on prices, the bank said, adding this implies a rise in inflation.

     Chile's gross domestic product surged 18.1 percent in the second quarter from the same quarter last year, the highest growth rate on record and stronger than forecast by the bank in its June policy report.

     The central bank has forecast growth this year of 8.5 - 9.5 percent.

     "The composition of spending showed an extraordinary dynamism in private consumption, which exceeded expectations and shows that injections of household liquidity is having a greater impact on consumption than expected," the central bank said, adding data from the beginning of the third quarter confirms the continuation of this trend.

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Chile becomes 7th EM central bank to raise key rate

     Chile's central bank raised its key interest rate for the first time in 2-1/2 years, as widely expected, saying a rapid narrowing of economic slack due to fiscal stimulus and strong consumption had created the appropriate conditions for a gradual withdrawal of monetary stimulus.

     The Central Bank of Chile (CBC) raised its monetary policy rate by 25 basis points to 0.75 percent in the first tightening of monetary policy since January 2019.

      Chile is the 7th emerging market central bank to raise its key rate this year to curb rising inflation due to the rapid economic recovery from last year's COVID-19 pandemic and the third central bank this week alone to tighten its policy stance after New Zealand ended its asset purchases and Canada trimmed its purchases for the second time.

      CBC's board, which was unanimous in its decision, said its monetary policy stance will still support the economic recovery after the rate hike as it has been one of the most expansive monetary policies among comparable economies and it expects the policy rate will remain below its neutral level over the next two years.

     Chile's central bank had kept its rate steady since March last year, when it was cut twice by a total of 1.25 percentage points, but began preparing financial markets for today's rate hike in June when it said it would be necessary to recalibrate its expansive monetary policy due to rising consumption and spending and omitted any reference to maintaining the policy rate.
      The bank's shift toward tightening was further underscored by the minutes of its board meeting on June 8 that showed a rate increase had been discussed as it was no longer necessary to maintain the current stimulus due to the strength of consumption and economic activity.

     CBC noted headline inflation in Chile's rose to 3.8 percent in June - above the bank's 3.0 percent target - but attributed this to higher fuel prices and excluding volatile prices core inflation was lower and inflation expectations were still around its target.

     As far as economic activity, CBC said the monthly economic activity index rose 18.1 percent year-on-year in May, above expectations and returning the economy to pre-pandemic levels.

     In early June the central bank raised its forecast for Chile's economy to expand between 8.5 to 9.5 percent this year, up from a March forecast of 6.0 to 7.0 percent growth.

Chile says will recalibrate expansive monetary policy

     Chile's central bank left its key interest rate steady but joined the growing number of central banks that are getting ready to unwind their extraordinary easy monetary policy stance by saying it will be "necessary to recalibrate the expansiveness of monetary policy going forward" in light of the "strong dynamism already present in consumption and the additional boost to private spending."
     The Central Bank of Chile (CBC) kept its monetary policy rate at 0.50 percent, unchanged since March last year when it was cut twice that month by a total of 125 basis points.

     CBC said the issue of changing its expansive policy stance would be addressed in its June monetary policy report that would be released tomorrow.

     Underscoring its shift toward a tighter policy stance, the central bank also changed its policy guidance for the second month, dropping any reference to how long it will maintain its current policy rate.

     In its May policy statement, the central bank's board dropped its previous references to keeping its rate 0.50 percent for several quarters and replaced this with the words that the rate would be kept at this level - which it considers a minimum - for as long as necessary for the economic recovery to take hold.

     Today, any reference to maintaining the rate was omitted, signaling rate hikes may be on the horizon.

     CBC, which also embarked on quantitative easing last year on top of rate cuts by purchasing corporate bonds, added 75 percent of funds from its FCIC facility had been used and in the reinvestment of bank coupon bonds had concluded in the first days of June.

      Last month the central bank said since January the asset purchase program had been reinvesting coupons as they mature and this policy would remain in place until June after which the stock would gradually be reduced based on the maturities of the assets in the portfolio.

     "Since the release of the March Monetary Policy Report, the fiscal stimulus has been significantly extended, which couples with the approval of the third pension savings withdrawal," the bank said, adding this additional boost to spending and the adaption of the economy had significantly improved the outlook for economic activity this year amid more favorable external conditions.

       Chile's inflation rate has also been rising in the last three months and rose to 3.6 percent in May from a low of 2.8 percent in February, but the bank said one and two-year inflation expectations still remain around 3.0 percent, the central bank's midpoint target.

Chile holds rate steady 6th time, confirms easy stance

     Chile's central bank kept its key interest rate steady for the sixth time and reiterated its guidance that it expects to maintain the monetary policy rate at its minimum level of 0.50 percent during most of the 2-year policy horizon as a strong level of monetary stimulus is still needed to ensure the economic recovery consolidates.

     The Central Bank of Chile (CBC), which cut its rate twice in March by a total of 125 basis points, added its unconventional policy measures will also remain in effect, with the total stock bank bonds purchased - around US$8 billion - to be maintained for the next six months, with any coupons reinvested.

    As in October, the bank's board was unanimous in its decision.

    The bank's monthly index of economic activity dropped 1.2 percent in October from September, which CBC said was was lower than it had expected and this reflected the complexity of the economic recovery when major sectors lag due to their reliance on human contact, such as construction, transport and many services.

     In contrast, trade and manufacturing sectors have picked up while mining shows normal activity, and the labor market is continuing to recover.

     CBC added that loans to firms had slowed further and consumer loans had contracted further while mortgage loans continue to show stable growth.

     In the third quarter of this year Chile's gross domestic product shrank by an annual 9.1 percent, up from  a 14.5 percent decline in the second quarter while inflation decelerated for the third month to 2.7 percent in November, below expectations but partly offsetting two months of upside surprises.

     Market expectations, however, have factored in the transitory nature of recent price changes and are stable around 3.0 percent two-years ahead. 

     CBC targets inflation of 3.0 percent, plus/minus 1 percentage points.

     In its September monetary policy report, CBC forecast an economic contraction of between 4.5 to 5.5 percent this year, up from the June forecast of 5.5 to 7.5 percent.

Chile maintains rate but boosts un-conventional easing

     Chile's central bank left its monetary policy rate steady for the second month but said the current state of the economy "requires an intensification of the monetary boost" and expanded its asset purchases and other incentives to businesses to stimulate economic activity further.
     The Central Bank of Chile (CBC) maintained its monetary policy rate at 0.50 percent, the level if it described as a "technical minimum," and said it would maintain "a high monetary stimulus for a prolonged period" to ensure compliance with its objectives, estimating the key interest rate will remain at the current level for the entire projection horizon.
      In addition, the central bank said it would explore options to intensify the monetary stimulus and support financial stability if  required, using unconventional monetary policy instruments.
    CBC has already cut its policy rate by 125 basis points this year following two rate cuts in March and by 250 points since June 2019 when it embarked on a monetary easing cycle.
     The central bank's decision comes a few days after Chile's government and lawmakers agreed on a US$12  billion stimulus package on top of earlier measures of some $17 billion to help the economy overcome the impact of measures to curb the spread of the Covid-19 pandemic.
     Chile's central bank said it would open phase two of the Conditional Facility for Increased Lending (FCIC), which covers US$16 billion of incentives for 8 months to lend to small and medium-sized enterprises (SME) and to non-banking credit providers.
     Secondly, CBC said it would implement a special asset purchase program in the amount of US$16 billion over 6 months with both programs mobilizing resources of up to 10 percent of Chile's Gross Domestic Product.
     The central bank added that it would continue to explore options to intensify the monetary stimulus and support financial stability via unconventional monetary instruments if needed.
      Data from Chile in April show a significant drop in economic activity in April, which the central bank should go to "new depths" in May and June due to the extension and duration of the measures to contain the Covid-19 pandemic.

Chile cuts rate 2nd time, economy to contract 'severely"

     Chile's central bank cut its policy rate for the second time this year to what it said was a "technical minimum" of 0.50 percent after it became clear "the economy entered a process of severe contraction in the second half of March that will extend throughout the second quarter."
     The Central Bank of Chile cut its rate by 50 basis points to 0.50 percent, it's second rate cut this month after a 75-basis-point cut on March 16. This means the rate has been cut by a total of 125 points this year, and by 250 points since June 2019 when it began a monetary policy easing cycle.
      "The external scenario has deteriorated significantly after the rapid global expansion of Covid-19," the central bank said, adding it had extended its program to purchase bank bonds by US$4 billion, raising the outstanding balance of the program to $5.5 billion.

Chile cuts rate 75 bps, to help credit markets function

    Chile's central bank cut its monetary policy rate by 75 basis points to 1.0 percent to ease the negative impact on the economy from the global spread of the coronavirus and launch a set of measures "to ensure the normal functioning of credit markets and the effective transmission the increased monetary stimulus."
     It is the Central Bank of Chile's first rate cut since October 2019 and the second since June 2019, with the rate now haven been cut by a total of 200 basis points.
     Although economic data for Chile has yet to reflect the disruptive impact of the virus, the central bank said experience from other countries suggest "the impact on sales and cash flows of the affected companies could be substantial, particularly for small and medium-sized enterprises," the bank said.
     "In these circumstances, the Board has decided to carry out a set of actions aimed at mitigating the negative impacts of these events and smooth the process of adjustments that the Chilean economy will have to deal with," it said.
      In addition to the rate cut, the central bank opened a 6-month, conditional funding facility (FCIC) with 4-year loans at interest rates equal to the monetary policy rate.
      The central bank said corporate bonds will now be included as collateral for all effective liquidity operations and a banking bond purchase program will be establishes for participants in the open market operations system for up to US$4 billion and finally foreign currency sales will be extended until Jan. 9, 2021.
      "The Board estimates that this set of measures will help the economy adjust to this new scenario, by mitigating its impact on households and businesses," the central bank said.
      Further changes in monetary policy, or additional measures, will depend on the evolution of the macroeconomic outlook, the functioning of financial markets and the fulfillment of the bank's inflation target and financial stability objectives.
     The rate cut was decided by the bank's board at a special meeting, with the board split in its decision regarding the rate cut. The Governor Mario Marcel, the vice governor and a third board member voting to cut the rate by 75 basis points while two other board members voted to cut the rate by 50 points.
     The decision regarding the additional easing measures was unanimous. The next policy meeting is scheduled for March 31.

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Chile maintains rate, to assess policy stance in March

    Chile's central bank left its monetary policy interest rate steady at 1.75 percent for the second month to safeguard an expansionary policy stance as stated in December, with the policy report in March assessing the economic situation and the implications for inflation and monetary policy.
     As in December, the decision by the Central Bank of Chile's board was unanimous in its decision.
     Chile's central bank cut its rate three times last year by a total of 125 basis points between June and October but then said in December it would maintain the rate in coming months in light of increased fiscal spending following widespread social unrest and intervention in the foreign exchange market of some $10 billion after the peso fell some 15 percent.
     The massive protests over inequality, which led to the death of more than 25 people, had a strong impact on the monthly economic activity index, known as Imacec, in October and November but the central bank said some moderation of this impact could be expected in data for December, as it had anticipated in its latest policy report.
     Chile's inflation rate rose for the third month in a row to 3.0 percent, below the central bank's expectation, but upward pressures from the fall in the peso since October remain present.
     On the other hand, the outlook for activity remains weak and the recovery of the economy continues to depend on how economic agents respond to the new economic situation, the bank said.
      In December the central bank slashed its 2020 growth forecast to a range of 0.5 - 1.5 percent from  and earlier 2.75 - 3.75 percent

Chile keeps rate steady, says will hold in coming months

    Chile's central bank left its monetary policy rate steady, a surprise to most economists who had expected another rate cut in response to continuing social unrest, and said it expects to keep its rate at the current level for the next few months following the government's plan to boost spending and the central bank's intervention to curb volatility in the peso.
     The Central Bank of Chile's board unanimously left its rate steady at 1.75 percent after cutting it three times this year by a total of 125 basis points following cuts in June, September and October.
    "In accordance to achieving the inflation target, and in the context of increased fiscal impulse and forex intervention, the Board foresees that the monetary policy rate will be kept at its current level over the coming months," the central bank said.
    Chile's peso and Chilean assets have tumbled since mid-October following the outbreak of massive protests over inequality. The peso jumped 2 percent in response to the central bank's decision to maintain rates to 787.8 per U.S. dollar.
     But compared to the start of this year it is still down 12 percent.
     Prior to the start of protests, which have included the death of more than 20 people and the injury of more than 13,000, the peso was trading around 716 to the dollar and it then fell 16 percent by late November but has begun rising again in recent days.
     Starting on Monday the central bank began selling $200 million each day, and placing another $200 million in the forwards market, in an intervention that is scheduled to run through May 29, 2020 to curb volatility in the exchange rate, which the central bank today deemed as "excessive."
     The central bank was frank in its assessment of the damages from the protests, saying economic activity and demand has been affected negatively and growth expectations for this year and next year have worsened, with growth now significantly worse than expected until mid-October.
     Chile's inflation rate rose to 2.5 percent in October from 2.1 percent in September and the central bank said the markets are now expected inflation will rise to over 3.0 percent by the end of the year, reflecting the sharp appreciation of the peso.
     On the other hand, widening capacity gaps will hold back inflation and the central bank said it was still too early to determine which of these two factors would dominate.
     On Dec. 5 the central bank will release its latest forecast and analysis that supports today's policy decision.

Chile cuts rate 3rd time as protests affect economy

     Chile's central bank cut its monetary policy rate for the third time and said it assumes "a further monetary boost is needed" to ensure inflation converges towards its target as recent events, which include violent protests against price hikes and a state of emergency, will affect economic activity.
     The Central Bank of Chile's board unanimously cut its monetary policy rate by a further 25 basis points to 1.75 percent and has now lowered it by 125 points following cuts in June and September.
     The cut in June followed a 25-point rate hike in January so the net reduction in the policy rate this year is 100 points.
     "The complex developments that have occurred in the country in recent days will have an impact on the evolution of the economy," the central bank said, adding activity in the short run will be affected by the partial breakdown of the country and damaged infrastructure.
      The central bank said its December Report would include an analysis of the impact of the recent events, the outlook for inflation and the response of monetary policy.
      Today's rate cut follows the central bank's warning in September that further easing might be required to boost inflation amid disappointing economic activity and the escalating trade conflict between the U.S. and China.
      Chile, the world's largest copper producer, has been hit by falling demand and a slump in prices for copper since June last year.
     Several cities in Chile, including the capital of Santiago, have been hit by days of riots, which have led to thousands of arrests and 15 deaths in response to a hike in public transportation costs.
     The violence led President Sebastian Pinera to declare a state of emergency, placing the military in charge of security. But Pinera has also acknowledged government failures and announced economic reforms intended to restore calm.
      The protests have hit financial markets hard, with the peso falling 2.2 percent to 726.6 to the U.S. dollar in recent days to be down 4.5 percent this year, Chile's main stock index has fallen 3.6 percent since last Friday, and JP Morgan has lowered the country to underweight from neutral.
     Looking abroad, the central bank said the external scenario was largely in line with it had expected in September "and continues to be marked by major tension spots, a deterioration of manufacturing, investment and global trade."
     In June the central bank cut its forecast for 2019 growth to 2.75 - 3.5 percent from the March forecast of 3.0 - 4.0 percent, and 2018's growth of 4.0 percent.

Chile cuts rate another 50 bps, more cuts may be needed

    Chile's central bank lowered its monetary policy rate by another 50 basis points to 2.0 percent and said further monetary stimulus might be required to boost inflation amid disappointing domestic activity and the escalating trade conflict between the U.S. and China that is affecting other economies that are integrated into value chains and financial markets.
     It is the second rate cut by the Central Bank of Chile this year following a similar-sized cut in June and the policy rate has now been cut 100 basis points this year, putting the rate at a level not seen since August 2010.
     The rate cut was widely expected following the central bank's guidance in July that it may be necessary to ease further if the current trends continue, with the size of any easing to be assessed in connection with the September monetary policy report, which will be released on Sep. 4.
     "The board's decision considers that the economy's performance of the second quarter and its outlook indicated that inflation will take longer to converge to the target, calling for stronger monetary stimulus," the central bank said, adding:
     "It also estimates that further stimulus might be required, which will be evaluated in the upcoming meetings in light of the evolution of the macroeconomic scenario."
    Unlike its cut in June, the board was unanimous in today's decision to cut the rate. In July a majority of its board decided to maintain the rate.
     "The main development since the previous meeting has been the worsening of the external scenario," the central bank said, adding global trade volume has virtually stagnated and the impact of the U.S.-Sino trade conflict is compounded by likelihood of the U.K.'s non-deal exit from the European Union and the severe deterioration of the situation in Argentina.
    As the world's largest copper producer, Chile's economy has been hit by falling demand and a slump in prices for for copper since June last year, with economic growth slowing to an annual rate of 1.9 percent in the second quarter following 1.6 percent in the first quarter.
    "In the second quarter, domestic activity and demand growth disappointed expectations," the central bank said, as exports had performed worse than expected and private consumption was also soft.
    In its June policy report, the central bank lowered its 2019 growth forecast to 2.75 - 3.5 percent from March's forecast of 3.0 - 4.0 percent and 2018's growth of 4.0 percent and last month Chile's government lowered its 2019 forecast to around 3.0 percent from an earlier forecast of 3.8 percent.
    The economic expectations survey for August showed 2.6 percent growth for 2019, 3.1 percent for 2020 and 3.3 percent for 2021.
    Inflation remained below the central bank's target of 3.0 percent at 2.2 percent in July while Chile's peso has been depreciating steadily since April last year and was trading at 725.9 to the U.S. dollar today, down 4.4 percent this year.

Chile maintains rate, but may ease again if trends persist

     Chile's central bank left its monetary policy rate steady at 2.50 percent but said it may be necessary to "extend the current monetary stimulus" if the current trend of low inflation continues, with the magnitude of any easing to be assessed in the next quarterly monetary policy report.
      The Central Bank of Chile, which surprised economists by cutting its rate by 50 basis points in June, said information since its last policy report reflected "increased risks associated with the timely convergence of inflation to the target," in particular inflation for services, and the "risks surrounding the future evolution of activity and demand, in a context of high external uncertainty."
      At today's board meeting a majority of its members voted to maintain the rate but board member Pablo Garcia voted to lower the rate by 25 basis points.
     The central bank publishes a monetary policy report every quarter and in the June report the forecasts for economic growth, investment and domestic demand for this year were lowered.
     Economic growth this year was seen between 2.75 percent and 3.5 percent, down from a range of 3.0 percent to 4.0 percent in the March report, and 2018's 4.0 percent.
      In the first quarter of this year Chile's gross domestic product stagnated from the previous quarter and on an annual basis GDP growth eased to 1.6 percent from 3.6 percent in the fourth quarter of last year.
      Data for the second quarter point to "less than expected dynamism," the central bank said, due to a poor performance by the mining sector and additional downside risks may be expected in coming months.
     Exports had also contracted more than expected due to weakness in its trading partners, with growth expectations in the EES survey being lowered for this year and next year.
      Chile's inflation rate was steady at 2.3 percent in June and May, below the bank's 3.0 percent target, and inflation expectations for the end of this year and in 12 months have declined.
      Chile's peso has risen slightly this year and was trading at 683 to the U.S. dollar today, up 1.6 percent since the start of the year.

Chile cuts rate 50 bps in surprise on wider output gap

     Chile's central bank surprised financial markets and investors by cutting its monetary policy rate by 50 basis points to 2.50 percent in response to lower-than-expected growth in the first quarter of this year and a wider-than-expected output gap from the impact of "massive immigration of recent years on trend and potential growth."
     The unanimous rate cut on June 7 by the Central Bank of Chile's (CBC) board surprised many economists because in its previous monetary policy decision from May 9 the central bank did not signal it was considering cutting its rate and CBC is known as transparent and predictable.
      In May CBC began a gradual shift away from its earlier tightening stance by saying it would keep its monetary stimulus in place for an extended time as inflation was sluggish and preliminary data showed first quarter growth was less than expected.
     This shift in May followed rate hikes by a total of 50 basis points in October 2018 and then in January this year when the central bank said it was gradually tightening its policy stance.
     Friday's rate cut reverses these two rate hikes, bringing the rate back to its level from May 2017 to September 2018.
     However, minutes from the board's meeting in May, released on May 27, showed the board had in fact discussed cutting the rate in a preventative and corrective action.
      The board was beginning to realize its monetary policy stance in the past had been less expansive than thought because the output gap was in fact bigger than expected due to positive impact of recent immigration on potential growth.
       Chile took in about 700,000 migrants between 2015 and 2017, many from Venezuela and Haiti. Venezuelans now comprise the largest foreign community in Chile, outnumbering Peruvians who were the largest community only two years ago.
      While some economists had taken note of the board's discussion in May, most thought this meant the central bank would keep its rate on hold for now or maybe cut it later this year after its lowered its growth forecast or the estimate for a neutral interest rate in its June monetary policy report.
      But in its policy statement, the board said the June report, which will be released on Monday, June 10, quantifies the effects of recent immigration on growth, boosting the estimate of potential growth by 25 basis points to 3.25 percent - 4.75 percent for the period 2019 to 2028 and to around 3.4 percent for 2019 to 2021.
      "This, combined with the lower growth of the first quarter, results in a widening of the activity gap," which means the neutral monetary policy rate has been revised down by 25 basis points, partly reflecting the drop in neutral rates around the world.
      The June monetary policy report suggest growth this year will be between 2.75 and 3.50 percent, below the previous forecast of 3.0 to 4.0 percent.
      For 2020 and 2021 growth is forecast between 3.0 and 4.0 percent, reflecting a recovery of growth in the second half of this year and higher potential growth.
      "The board estimates that, in light of the updating of the structural parameters, the economy has not recovered enough to close the activity gap and boost inflation," CBC said, adding"
      "Accordingly, the board has deemed it necessary to recalibrate the monetary impulse," with the new level of its policy rate enough to ensure inflation converges to the target.
      Going forward, CBC said changes to the policy rate will depend on how inflation moves toward its 3.0 percent target, with this depending on the labour market absorbs the inflow of migrants, the level of investment and external developments.
      Chile's gross domestic product slowed to lower-than-expected annual growth of 1.6 percent in the first quarter of this year from 3.6 percent in the fourth quarter of 2018, with the CBC pointing to slower growth of machinery and equipment investment, exports as a consequence of a deterioration in the external markets and a build-up of inventory that failed to reverse as it had expected.
      Headline inflation rose to 2.3 percent in May, but mainly due to higher electricity rates, with core inflation of 1.9 percent and inflation expectations for end-2019 and in 12 months below 3.0 percent.
     CBC's policy decision was released after financial markets closed on Friday, with Chile's peso so far showing little change in response to the rate cut.
      The peso was trading at 692.8 to the U.S. dollar on June 9, steady from levels seen in the second half of last week but up 2.4 percent from last Monday. Compared with the start of 2019, the peso was steady.

Chile maintains rate, to keep stimulus for extended time

     Chile's central bank kept its monetary policy rate steady for the second time following hikes in October 2018 and January this year, saying "the lower level and outlook of inflation require keeping the monetary stimulus still for an extended time."
     The Central Bank of Chile, which raised its rate by a total of 50 basis points in October and January, added the latest economic data did not deviate significantly from the March monetary policy report and the course of monetary policy normalization will be reviewed in the June report.
     The central bank, which last month lowered its 2019 economic growth forecast to 3.0 - 4.0 percent from a previous 3.25 - 4.25 percent due to sluggish inflation, said preliminary data show first quarter gross domestic product grew less than forecast in March.
     Slower than expected activity was due to reduced mining activity and some of the more volatile sectors while other sectors were in line with expectations, particularly services and investment.
     On the consumption side, there are no signs of a change in trend as the slowdown in durable goods consumption is offset by a strengthening of services, the central bank said.
     Chile's GDP grew 3.6 percent in the fourth quarter of last year, up from 2.6 percent in the third.
     Chile's inflation rate has been steady at 2.0 percent in March and April while inflation expectations  for this year and one-year ahead remain somewhat below 3.0 percent, the bank's target.
     The central bank in April lowered its inflation forecast for end 2019 to 2.6 percent from December's forecast of 2.9 percent.

Chile raises rate 25 bps, gradual tightening still warranted

     Chile's central bank raised its monetary policy rate by a further 25 basis points to 3.0 percent, saying economic conditions continue to warrant a gradual withdrawal of monetary stimulus as outlined in the December monetary policy report.
      The Central Bank of Chile, which has now raised its rate twice since October 2018, reiterated its earlier guidance that it would proceed with withdrawing monetary stimulus "gradually and cautiously."
     Today's rate hike comes after the board at its December meeting discussed raising the rate but decided against another hike because raising the rate so soon after the October hike might signal an unwarranted sign of urgency and would not be in line with its guidance of withdrawing monetary stimulus gradually and cautiously.
     Including today's rate increase, which was unanimously agreed by the bank's board, the policy rate has now been raised by 50 basis points in the last four months.
     Today's rate hike comes against a faster-than-expected easing of growth in the world economy but Chile's economy "regained its dynamism" in the last quarter of 2018, as expected, helped by non-mining activity and construction.
     However, the central bank added that partial data for consumption show slower growth than in the first part of 2018, especially for durables though the latest survey of expectations still look for growth of 3.6 percent in 2019.
     The central bank has estimated 2018 growth of 4 percent and between 3.25 and 4.25 percent in 2019 while underlying inflation is expected to converge to the 3.0 percent target within two years.

Chile maintains rate but to continue reducing stimulus

     Chile's central bank kept its monetary policy rate steady at 2.75 percent in a unanimous vote by its board, saying data confirm that economic conditions make it necessary to reduce the monetary stimulus in a process "that will continue to be implemented gradually and cautiously."
     The Central Bank of Chile, which in October raised its rate for the first time since December 2015,  added the key to making this judgment over reducing stimulus is how the capacity gaps - which has narrowed while inflation has risen - relates to monetary stimulus that remains highly expansionary.
     In October the central bank raised its rate by 25 basis points after the board in June began considering withdrawing monetary stimulus.
     Chile's inflation rate eased to 2.9 percent in October from 3.1 percent in September while prices that are more sensitive to the activity gap, such as non-regulated utility rates, continue to accelerate steadily, the central bank said.
     Private inflation expectations have eased in line with lower international prices of oil and fuels while they remain at the central bank's 3.0 percent target for 2 years out.
     Chile's economy slowed in the third quarter more than expected, mainly due to specific factors related to mining and manufacturing. The Gross Domestic Product growth eased to 2.8 percent from 5.4 percent in the second quarter.
     The central bank added the EES market outlook pointed to annual economic growth of 4.0 percent this year and 3.5 percent in 2019 and 2020.

Chile raises rate 25 bps so inflation stays around target

     Chile's central bank raised its monetary policy rate by 25 basis points to 2.75 percent, saying the "board believes that the monetary stimulus should begin to be reduced to ensure that inflation perspectives remain close to the target."
      It is the first rate hike by the Central Bank of Chile since December 2015 when the rate was raised to 3.50 percent to rein in inflation, boosted by the fall in the peso's exchange rate.
      Beginning in January 2017 the central bank then began cutting the rate as inflation eased and in four quick steps it sliced 100 basis points of the key rate, wrapping up its easing cycle by May 2017.
      Since then the rate has been kept stable but beginning in June the board has been considering withdrawing monetary stimulus. Minutes from the September meeting showed committee members had considered raising the rate before deciding unanimously to maintain it.
      Today's decision, which was unanimous by the board, reflected the recent narrowing of the output gaps in recent quarters and the expectation that this will continue so inflation will be around 3.0 percent in coming quarters, the bank's target.
      The central bank said it expects the monetary policy rate to converge to its neutral level by 2020 and beginning this process in a timely manner would allow a tightening to be gradual and cautious.
      Chile's inflation rate rose to 3.1 percent in September from 2.6 percent in August, with investment in machinery and equipment continuing to boost domestic spending, with durable consumption also strong.
       Business expectations are also optimistic while household expectations have ease in recent months and are below their neutral threshold, the central bank said.
       Chile's peso firmed steadily for two years beginning in January 2016 but since February this year it has depreciated, like most emerging market currencies.
       In the last week the peso has risen as investors looked for tighter monetary policy and today the peso was trading at 676.2 to the U.S. dollar, down almost 9 percent this year.