Chile Keeps Key Rate Steady Despite September Disinflation

Chile’s central bank kept the benchmark interest rate unchanged at 2.50 percent on October 18th of 2017, leaving the rate unchanged for the fifth straight meeting. The outcome matched consensus expectations, and leaves the interest rate standing at its lowest level since September of 2010. Policymakers underscored that economic conditions keep slightly improving and that no major surprise was observed since the September meeting, excluding the CPI’s downturn, which according to members of the monetary committee could trigger an adjustment to the policy rate. Chile's consumer prices increased 1.5 percent year-on-year in September of 2017, easing from 1.9 percent in the previous month. It was the lowest inflation rate since October of 2013.

Statement by the Central Bank of Chile:

On the external front, global activity and prospects brought no big news, and the signs of stronger dynamism remain. Global financial conditions remain favorable. The main development of the month was the increase in some commodity prices, especially copper and oil.

On the domestic front, September’s CPI inflation was surprisingly low, pulling its y-o-y change to 1.5%. While inflation expectations at shorter terms declined significantly, at longer terms they saw limited adjustments. Third-quarter data at hand show activity and demand behaving in line with the latest Monetary Policy Report’s baseline scenario, and the better performance of consumer-related sectors relative to investment-related ones continues to stand out. The behavior of private consumption reflects the evolution of the labor market and expectations becoming less pessimistic.

Activity figures made available after the September Report are consistent with the baseline scenario and the monetary impulse depicted therein. However, incoming inflation figures point to it falling short of expectations in the short term. This could delay its convergence to the target within the two-year horizon. The Board will pay special attention to this risk—already identified in the Report—as it could require adjusting the policy rate. At the same time, the Board reiterates its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the two-year horizon.

Chile Keeps Key Rate Steady Despite September Disinflation

Mario |
10/19/2017 9:38:14 PM