Central Bank of Chile

August 12, 2016

The notable element in the latest statement from Chilean monetary authorities isn’t the announced decision to keep its interest rate benchmark at 3.5% or the reasons given for doing so but rather that language found in earlier such statements that explicitly projected more rate normalization (code for rate hikes) was deleted. Instead, officials just pledge a “commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the policy horizon.” In other words, the evolution of developments in the future will determine when policy next gets changed and the direction of the interest rate move at that time. Chilean inflation is above the target at the moment and not expected to fall beyond 3.6% later this year, but officials are confident that it will be sitting on 3.0% at the end of 2017. GDP contracted marginally last quarter.

Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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