Central Bank of Chile Policy Unchanged

December 14, 2012

The 4-person Policy Board at the Central Bank of Chile has retained a 5.0% policy rate for the eleventh straight time.  When such was cut in January 2012 by 25 basis points to 5.0%, the conventional view among analysts was that 2012 would see about three more such reductions.  Not one occurred even despite the persistence of globally generated risks to growth and a slowdown of inflation from 4.4% in December 2011 to 2.9% in October.  That’s very close to the medium-term target.  A statement from officials released today observes somewhat more favorable global financial conditions than a month ago, Chilean production and demand trends that have evolved as they had assumed, and expected inflation that remains well aligned with the central bank target.  GDP rose by a respectable 5.7% in the year to 3Q12. 

The statement concludes by reiterating that future changes in the monetary policy rate will hinge on how demand, both domestic and foreign, evolve and how such affects the outlook for inflation.   The central bank authorities were not bashful about slashing interest rates during the Great Recession and afterwards normalizing policy just as aggressively.  From a low of 0.5%, the key interest rate was lifted by 275 basis points in the final seven months of 2010 and by a further 200 bps in the first half of 2011.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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