Central Bank of Chile: Easing on Hold

November 19, 2014

Chilean officials are trying to strike a policy balance that maintains the credibility of the 2-4% inflation target but also supports growth, which is near 2% and at a five-year low.  Monetary officials previously had implemented eight 25-basis point rate cuts in January 2012, October and November 2013, and February, March, July, August and September of this year.  However, October, saw an unexpectedly steep spike in inflation to 5.7%, almost double the target mid-point, and officials at the November meeting clearly were more mindful of not squandering their hard-won reputation for delivering price stability.  A statement after the meeting postulates that much of the rise in inflation stemmed from temporary factors but shifts the order of priorities to a greater stress on reducing inflation.

This surprise in inflation may be linked primarily to one-off temporary factors. The evolution of prices will continue to be monitored with special attention. Medium-term inflation expectations have remained around 3%. The Board reiterates its commitment to conduct monetary policy with flexibility so that projected inflation stands at 3% over the policy horizon. Any future changes in the monetary policy rate will depend on the implications of domestic and external macroeconomic conditions on the inflationary outlook.

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



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