Central Bank of Chile Leaves Key Interest Rate Unchanged as Expected

June 13, 2014

Chile’s central bank rate is currently 4.0%, same as Peru’s, even though Chilean inflation of 4.7% is 1.1 percentage points above the Peruvian rate.  Also, whereas Peru’s rate has been reduced just once in the past four-plus years (by 25 basis points last November), Chile’s monetary policy rate was sliced five times by that increment between January 2012 and March 2013 to reach the current level.  A statement released by Chilean monetary authorities speaks of “low dynamism of output and demand” and lessening dynamism in Chile’s labor market.  Medium-term inflation expectations hover around the 3% central bank inflation target, and officials project that inflation will in fact settle back toward that level.  Note that the target lies a percentage point higher for this central bank than Peru’s.  Finally, the statement allows for the possibility of a further cut in rates in the future without mentioning any risk of tightening.  Whether the 4.0% policy interest rate can be cut hinges on future data trends.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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