Central Bank of Chile

October 19, 2018

Chilean monetary officials agreed unanimously to the first interest rate hike since December 2015, raising its key rate by 25 basis points to 2.75% from 2.50%, which had prevailed since May 2017 and had constituted the lowest level since September 2010. In taking this first tightening, which markets had anticipated, officials noted that Chile’s output gap has narrowed and is likely to continue shrinking, and note was made that inflation had risen in September by a half percentage point to¬† 2-year high of 3.1%, which exceeds target. The decision to raise the interest rate benchmark was made in spite of weaker growth prospects in Chile and the world. A released statement provides the following forward policy guidance:

the Board believes that the monetary stimulus should begin to be reduced to ensure that inflation perspectives remain close to the target. Bearing in mind that, in the baseline scenario of the Report, the monetary policy rate will converge to its neutral level in 2020, a timely start of this process allows proceeding with graduality and caution.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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