Chilean Monetary Policy on Hold

October 14, 2011

The Central Bank of Chile released a guarded statement after policymakers left steady the 5.25% benchmark interest rate, Latin America’s third highest after Brazil and Argentina.  Officials note that domestic output and demand are moderating — the former more quickly than they had assumed.  With overall inflation around 3.0%, core CPI and expected inflation remain contained and near target.  But the major influence on current thinking, as at other central banks, is the slowing international economy:

A deepening of the trends observed in the world economy could shape a more adverse scenario than the one assumed in the Report’s baseline scenario, with potential consequences for growth and inflation in Chile, as well as for the orientation of monetary policy.

Chile’s central bank eased aggressively during the Great Recession but had been equally forceful in normalizing policy subsequently.  Twelve interest rate increases were implemented from June 2010 to June 2011, skipping only January 2011 and cumulating to a combined 475-basis point tightening of the key policy rate from 0.5% to 5.25%.  Having done this, the Chilean central bank is better positioned than most others to provide future support for the economy if that is deemed necessary.

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



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