Chile opts to raise policy rate to 3½%; inflation projections unchanged

By Marisa Wong

Morgantown, W.Va., Dec. 17 – The board of the Central Bank of Chile decided to raise the monetary policy interest rate by 25 basis points, to 3½%, according to a bank notice.

The board said that the external scenario continues to show a deterioration of emerging economies, largely due to a relapse of commodity prices and not-so-favorable global financial conditions. The world economic outlook posted no major change from last month, but lately the global growth forecast has been reduced.

The Federal Reserve increased the policy rate, causing no immediate disruption in the global financial markets, the bank noted.

On the domestic front, annual CPI inflation declined to 3.9% but is expected to again exceed 4% shortly. Core inflation is still close to 5% year-over-year.

Meanwhile, inflation expectations two years out remain at 3%.

The board highlighted that partial fourth-quarter data continue to show limited growth in domestic output and demand. Confidence indicators remain in pessimistic territory. Job creation and wage growth are still dynamic, the bank said.

The board said that the future path of the monetary policy rate considers measured adjustments aimed to ensure the convergence of inflation to the target.

The board reiterated its commitment to conduct monetary policy with flexibility so that projected inflation stands at 3% over the policy horizon.

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