Chilean Monetary Policy

June 15, 2011

The Central Bank of Chile late Tuesday implemented the twelfth rate hike of the current tightening cycle but, as expected, cut the size of the move to 25 basis points from increases of 50 bps undertaken in March, April, and May.  The 5.25% new overnight rate level lies 475 basis points above the 0.5% cyclical low seen from September 2009 to June 2010 but remains 300 basis points under the cyclical high of 8.25% prior to August 2009.

A statement from officials leaves the door open to likely additional interest rate increases in the future.  While noting a slowdown in global growth and moderating expected inflation, language dealing with Chile’s domestic economy stresses the dynamism of output, demand, and the labor market.  In Chile’s case, expected inflation remains above target.  Real GDP will not sustain the 9.8% advance between 1Q10 and 1Q11 but should be six-something percent this year and around 5% in 2012.

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



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