By CentralBankNews.info
Chile’s central bank maintained its monetary policy rate at 3.0 percent, as expected, and confirmed its guidance from last month that future changes would depend on the impact of economic conditions on inflation.
The Central Bank of Chile, which has cut its rate by 200 basis points since October 2013, most recently last month, to counter an economic slowdown, said domestic demand and employment still point to a sluggish economy but local financing conditions are reflecting the monetary stimulus.
The central bank admitted that a jump in October inflation was a significant surprise and inflation is likely to remain above the upper limit of its tolerance range for some months due to transitory factors. But expectations for medium-term inflation remain around 3 percent.
Chile’s headline inflation in October rose to 5.7 percent, the highest since January 2009, and up from 4.9 percent in September. The central bank targets annual inflation of 2-4 percent.
On Oct. 23, Rodrigo Vergara, president of the central bank, said he didn’t envisage more rate cuts as the economy was poised to pick and inflation at a five-year high.
Chile’s economy has been slowing since the fourth quarter of last year, with the annual growth rate falling to a 5-year low of 0.8 percent in the third quarter from 1.9 percent in the third as both fixed investments and domestic demand declined.
But compared with the second quarter, Chile’s Gross Domestic Product expanded by 0.4 percent following a quarterly contraction of 0.1 percent in the second quarter.
This brought accumulated growth in the first nine months of this year to 1.8 percent, according to the central bank, which has forecast 2014 growth of 1.8 percent, down from 2013’s growth of 4.1 percent.
The Central Bank of Chile issued the following statement: (translation by Google)
“At its monthly monetary policy meeting, the Board of the Central Bank of Chile decided to keep the interest rate monetary policy at 3% annually.
Internationally, recent history reassert prospects good economic performance in the US and slower growth and low inflation in the eurozone and Japan, a phenomenon that has accentuated the differences in monetary policy pursued by those countries. External financial conditions tended to normalize during the month, but further increases in volatility are not disposable. Growth projections for emerging Asia decreases slightly, while in Latin America confirms the major weakness of the region. Oil prices fell again, while copper has remained relatively stable.
The background activity, demand and jobs still account the sluggishness of the Chilean economy. Local financing conditions reflect the impact of monetary stimulus. October inflation surprised significantly upward to 5.7% annually. In the most likely scenario, some months will remain above the upper limit of the tolerance range. The inflation surprise may be associated mainly to specific and transitory factors. The evolution of prices will continue to monitor with focus. The expectations of medium-term inflation to remain around 3%.
The Council reaffirms its commitment to conduct monetary policy with flexibility so that projected inflation at 3% over the policy horizon. Future changes in the monetary policy depend on the implications of internal and external macroeconomic conditions on the inflation outlook.”