Chile cuts rate 25 bps, changes depend on inflation

October 16, 2014

By CentralBankNews.info
    Chile’s central bank cut its monetary policy rate by another 25 basis points to 3.0 percent, as expected, and said “any future changes in the monetary policy rate will depend on the implications of domestic and external macroeconomic conditions on the inflationary outlook.”
    The Central Bank of Chile, which has now cut its policy rate by 200 basis points since October 2013, also said data on output, demand and employment “continue to reveal the low dynamism of the Chilean economy, in line with forecasts.”
    “The prices of commodities, including copper, have declined, with a notorious drop in world fuel prices,” the central bank added. Chile is the world’s largest copper producer.
    The central bank’s guidance signals that it has now adopted a more neutral stance compared with its easing bias in September when it said it would consider further monetary stimulus.
     Chile’s headline inflation rate rose to 4.9 percent in September from 4.5 percent in August, the sixth consecutive month that it has remained above the central bank’s 2 – 4 percent target range.
    Gross Domestic product rose by 0.2 percent in the second quarter from the first for annual growth of 1.9 percent, down from 2.4 percent in the previous quarter.
    Earlier this week Rodrigo Vergara, the central bank governor, said inflation would ease to the central bank’s target levels by the second quarter of 2015

     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 lower the monetary policy interest rate by 25 basis points, to 3.0% (annual).
Internationally, recent indicators suggest that, in the incoming quarters, world growth and inflation could be somewhat lower than expected. The prices of commodities, including copper, have declined, with a notorious drop in world fuel prices. Most recently, interest rates have fallen in developed countries, while volatility has increased in financial markets. Most emerging economies are showing higher risk premiums and depreciated currencies.
Output, demand and employment indicators continue to reveal the low dynamism of the Chilean economy, in line with forecasts. Local financing conditions reflect the impact of the monetary stimulus. September’s inflation was again higher than expected, at 4.9% y-o-y. The most likely scenario assumes that inflation will stay above the upper bound of the tolerance range still for some months, to later return to the target. This evolution will continue to be monitored with special attention. Medium- term inflation expectations have remained around 3%.

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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