Thursday, June 15, 2017

Chile maintains rate and neutral policy guidance

     Chile's central bank left its monetary policy rate unchanged at 2.50 percent, as expected, and repeated its neutral guidance by saying that any future changes in policy would depend on the implications of domestic and external conditions on the inflationary outlook.
      The Central Bank of Chile has cut its rate four times this year by a total of 100 basis points and following its most recent cut in May it also signaled a neutral stance by staying future changes would depend on the inflationary outlook.
     Today the central bank said inflation in May had eased to 2.6 percent from 2.7 percent - the lowest since November 2013 - and inflation expectations remained near its target of 3.0 percent, plus/minus 1 percentage point.
      The bank also said partial data for activity and demand in the second quarter of the year were consistent with its forecasts, reflecting the negative impact of mining and construction while private consumption remains stable.
       Earlier this month the central bank cut its 2017 growth forecast to between 1.0 and 1.75 percent from a previous forecast of 1-2 percent due to weak performance by mining and construction.
        The central bank's president, Mario Marcel, also said on June 5 he did not expect changes to monetary policy would be necessary as the policy stance was now expansive and past rate cuts should be allowed to filter down into the economy.
        For 2018 the central bank forecast growth of 2.5 - 3.5 percent, up from a previous 2.25 - 3.25 percent as mining investment is expected to bounce back.


"In its monthly monetary policy meeting, the Board of the Central Bank of Chile decided to keep the monetary policy interest rate at 2.5%.

Internationally, indicators continue to show favorable financial conditions and a scenario of gradual economic recovery in the main developed countries, as described in the latest Monetary Policy Report. Commodity prices show mixed fluctuations, where the drop in the prices of oil and derivatives stands out.

On the domestic front, annual inflation stood at 2.6% and inflation expectations at the end of the projection horizon remain near the target. Partial second-quarter figures for activity and demand are consistent with forecasts, and reflect the negative impact of mining and construction. Private consumption remains stable, in line with the performance of the labor market.

The Board reiterates its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the policy horizon. Any future changes in the monetary policy rate will depend on the implications of domestic and external macroeconomic conditions on the inflationary outlook."


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