Chile Unexpectedly Cuts Interest Rate To 2.75%

Chile’s central bank cut the benchmark interest rate by 25 bps to 2.75 percent in its April 13th, 2017 meeting. Market participants were expecting no change. The move leaves the interest standing at its lowest level since October of 2010. In the central bank’s policy statement, the policymakers mentioned that economic activity remains subdued and that inflation is expected to remain on target. Members of the board also underscored that further easing will depend on mid-term inflation expectations.
Mario | 4/13/2017 9:17:24 PM
Inflation came at 2.7 percent in March, at the same pace as February and within the central bank’s target of 2.0-4.0 percent. Core inflation eased to 2.2 percent, the lowest since November of 2013. The central bank predicts year-end inflation of 2.7 percent in 2017.

In its March quarterly inflation report, the central bank lowered GDP estimates, while leaving unchanged inflation forecasts, suggesting that a more accommodative monetary stance may be expected this year.  

Statement by the Central Bank of Chile:

Internationally, global financial conditions remain favorable and various indicators point to a scenario of stronger growth and higher inflation in the developed world. Commodity prices showed mixed fluctuations, where the higher oil price stood out. Overall, important risks persist.

On the domestic front, inflation and activity performed in line with forecasts in the March Monetary Policy Report. Annual inflation remained at 2.7% and expectations at the end of the projection horizon are near the target. Indicators on economic activity and domestic demand remain weak. In particular, the labor market has deteriorated somewhat more than foreseen.

To ensure the convergence of inflation to the policy target, the Board will assess the need for some additional increase in the monetary impulse, which will hinge on the medium-term inflation outlook. As always, it reiterates its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the policy horizon.

Chile Unexpectedly Cuts Interest Rate To 2.75%