Chile Holds Rate, Sees Steady Rate Till Inflation Nears 3 Percent

Chilean currency, July 13, 2010. / Sauce Babilonia / Flickr

Chile‘s central bank left its monetary policy rate at 2.50 percent and said its board “foresees that it will keep the monetary stimulus at its current level until macroeconomic conditions tend to consolidate the convergence of inflation towards 3%.”

The Central Bank of Chile, which has maintained its rate since May 2017, added it expects inflation to remain low during the better part of this year and then rise toward the 3.0 percent target as the capacity gap gradually closes.

But the persistence of low inflation, especially low core inflation, means the central bank will continue to monitor “with special care” the risk that inflation will not reach the inflation target.

Chile’s headline inflation rate declined for the fourth consecutive month to 1.8 percent in March from 2.0 percent in February, with the central bank saying inflation was still driven by the appreciation of the peso, the current capacity gaps and indexation to lower inflation rates.

Inflation expectations showed no significant change from the March monetary policy report, the central bank said, with analysts’ expectations for inflation one year ahead between 2.5 and 2.7 percent and between 2.8 and 3.0 percent two years ahead.

Chile’s peso has appreciated since January 2016 though it eased in the last half of April in line with the trends seen in international markets.

Today the peso was trading at 618.5 to the U.S. dollar, down 0.5 percent this year but up 8.2 percent than at the start of 2017.

The latest data on economic activity and demand are in line with the baseline scenario in the March report, with growth in the first quarter significantly affected by the rise in mining. Activity in other sectors maintained the better performance seen in earlier months, with the central bank pointing to a greater contribution of several investment-related sectors.

But private salaried employment has yet to recover and wages have decelerated, which the bank said could “take a toll on wage mass growth and possibly on consumption.”

The economic expectations survey from April showed no major changes in expected growth for this year and 2019, with growth in each year seen somewhat above 3.5 percent.

In March the central bank raised its forecast for growth this year to 3.0-4.0 percent from 2.5-3.5 percent.

Last year Chile’s economy grew 1.5 percent, up from 1.3 percent in 2016.

This article originally appeared on and is reproduced here with permission from the author.

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