Central Bank of Chile: No Rate Change after Monthly Meeting

December 14, 2011

Unlike their Brazilian counterparts, members of the Chilean Central Bank Policy Board have not yet cut their benchmark interest rate, which remains at 5.25% after the latest monthly meeting.  That policy choice is not to say that officials are not closely watching the euro debt crisis.

Despite recent announcements, the uncertainty persists about the resolution of the situation in European economies, whose fiscal and financial risks are still very high. Global financial conditions remain tight. …. The external scenario has become more adverse than previously projected, which will likely have consequences over growth and inflation in Chile, as well as for the orientation of monetary policy.

The impediment to cutting rates is that despite activity evolving somewhat less robustly than projected by bank officials, headline inflation has been higher than expected, and the economy appears to be running not far from full employment of resources. 

So officials at the moment wait and judge.  Having tightened aggressively in 2010 (275 basis points’ worth) and by a further 200 basis points in the first half of this year, however, they will have considerable maneuvering room in 2012 should inflation recede and the need to stimulate become more pressing.  The pre-Great Recession peak interest rate was at 8.25%.

Copyright 2011, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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