Central Bank of Chile Holds Interest Rate Steady

January 17, 2014

There was no rate reduction this time for a second straight monthly meeting, but a statement from Bank officials retains a policy bias toward easing:

The Board estimates that in the coming months it might be necessary to increase the monetary stimulus to ensure that projected inflation will stand at 3% in the policy horizon.

On-year inflation ended 2013 at the 2-4% target midpoint, but December’s 0.6% month-on-month advance in consumer prices stemmed from volatile items like food and energy.  Officials are not worried about the risk of above-target inflation, and expected inflation remains well-anchored.  Growth in domestic demand, business spending, and overall GDP continues to slow and run below its potential trend.  Policymakers cut their reference interest rate by 25 basis points each in October and November and did an initial 25-basis point cut in January 2012.  A dozen prior hikes between June 2010 and June 2011 lifted the rate to 5.25% from a post-Great Recession low of 0.5%.  The key rate now stands at 4.5%.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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