Chile maintains rate as closely monitors inflation

     Chile's central bank left its monetary policy interest rate unchanged at 3.50 percent, saying headline inflation in December was somewhat lower than expected even though it was above the bank's target and core inflation is still close to 5.0 percent.
    "The evolution of these variables will continue to be monitored with special attention," said the Central Bank of Chile, which raised its rate by 50 basis points in 2015, most recently in December.
    The central bank added that the future path of the policy rate considers "measured adjustments" to ensure that inflation converges to the bank's target, a phrase it also used last month.
    Commenting on the recent volatility in financial markets, the central bank said this was due to events in China while the rate hike by the U.S. Federal Reserve "caused no significant changes in global financial markets."
    Chile's headline inflation rate jumped to 4.4 percent in December from 3.9 percent in November while core inflation eased to 4.9 percent from 5.1 percent.
    The central bank targets inflation at a midpoint of 3.0 percent, plus/minus 1 percentage point.
    Data for the fourth quarter continue to show limited growth in domestic output and demand, the bank said, adding that confidence remains pessimistic and annual wage growth was slightly less than in previous months.
     Chile's inflation rate has been fueled by the fall in the exchange rate of the peso.
   The peso has been falling since April 2013 and depreciated by 14.4 percent against the U.S. dollar last year. The decline has continued this year and today the peso was trading at 724 to the dollar, down 2.2 percent since the beginning of the year.


    The Central Bank of Chile issued the following statement:

   "In its monthly monetary policy meeting, the Board of the Central Bank of Chile decided to keep the monetary policy interest rate at 3.5%.

Abroad, the policy rate hike by the Federal Reserve Board has caused no significant changes in global financial markets. The main development has been the volatility of financial markets deriving from events in China. In this context, emerging markets’ currencies have depreciated— the Chilean peso included—and their sovereign premiums have risen. Stock prices have fallen, as have commodity prices, especially copper and oil. World activity indicators show no significant changes compared to last month’s scenario.

On the domestic front, December’s monthly CPI inflation was somewhat lower than expected, and in annual terms was above 4% again. Core inflation—the CPIEFE—is still close to 5% y-o-y. Inflation expectations two years out remain at 3%. The evolution of these variables will continue to be monitored with special attention. Available fourth-quarter data continue to show limited growth in domestic output and demand. Confidence indicators are still in pessimistic territory. The unemployment rate remained low and annual wage growth was slightly less than in previous months.

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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