Central Bank of Chile Leaves Monetary Policy Rate at 0.5%

December 11, 2009

Similar to the last three meetings in August, September and October, the key central bank rate in Chile was left at an accommodative 0.5%, and the statement from officials promised such would stay there for “a prolonged period of time.”  How long might that be?  Well, the statement say to at least 2Q10.  The phrase “prolonged period of time” was utilized initially at the time of the last rate cut in July to 0.5% from 0.75%.  The rate was reduced by a massive 600 basis points in the first quarter of 2009 and another 150 basis points in 2Q09 from a 8.25% peak level at the end of 2008.  The backdrop for this massive easing has been a swing in on-year CPI inflation from 9.9% in October 2008 to minus 1.9% in October 2009.  The statement notes that measures of expected inflation remain stable in spite of a softer peso and that output and demand suffered a setback in September, resulting in positive but weaker-than-assumed growth last quarter.  Looking to improved conditions ahead, quantitative easing is being very gradually curbed, with the maximum term for FLAP cut back at this time by another 30 days to 150 days.  The facility at this pace will close next May.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.


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