By CentralBankNews.info
Chile’s central bank held its monetary policy rate steady at 3.0 percent, noting that financial markets remain “highly volatile” as the outlook for global growth has deteriorated slightly while developments in China have increased the risks, especially for commodity exporting economies.
The Central Bank of Chile, which has maintained its rate this year after cutting it by 150 basis points last year, added that inflation remains above 4.0 percent and is expected to stay at that level for longer than previously thought.
Meanwhile, output and demand continues to be weaker than assumed in the monetary policy report and expectations for 2015 and 2016 growth by private economists has dropped further, the bank said.
Last week Rodrigo Vergara, central bank president, told a local newspaper that Chile’s copper exports were suffering from the slowdown in China, but interest rate cuts were off the table due to the weakening peso and faster inflation.
In its June policy report, the central bank forecast growth this year of 2.25 to 3.25 percent compared with 2014’s 1.9 percent, and average consumer price inflation this year of 3.9 percent, down from 4.4 percent in 2014, and 3.4 percent in 2016.
Chile’s inflation rate rose to 4.6 percent in July from 4.4 percent in June as the peso continued to depreciate. The peso started falling in mid-May and was trading at 685.2 to the U.S. dollar today, down 11.5 percent this year.
The Central Bank of Chile issued the following statement:
“In its monthly monetary policy meeting, the Board of the Central Bank of Chile decided to keep the monetary policy interest rate at 3% (annual).
Internationally, financial markets remain highly volatile. Emerging country currencies have depreciated further and risk premiums have increased. The outlook for global growth has deteriorated slightly and developments in China have increased risks, especially for commodity exporting economies. The prices of both copper and fuels dropped again.
Domestically, annual CPI variation is still above 4% and is expected to stay in that level for longer than previously thought. One year ahead, market expectations increased again, but two years ahead remained unchanged. The evolution of inflation expectations will continue to be monitored with special attention.
Meanwhile, output and demand continue to be weaker than assumed in the Monetary Policy Report’s baseline scenario, and private growth expectations for this and next year dropped further. Confidence indicators have turned more pessimistic. Private job creation and annual wage growth show no material change from last month. The peso has depreciated.
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.”
