Chile maintains rate, monitoring inflation with "attention"

    Chile's central bank kept its monetary policy interest rate steady at 3.0 percent but said inflation will remain above the upper bound of its tolerance range "for some months" and it would continue to monitor the evolution of prices with special attention.
    The Central Bank of Chile, which has cut its rate by 200 basis points since October 2013, also confirmed its current guidance that changes in its policy rate would depend on the implications of domestic and external economic conditions on the outlook for inflation.
    Chile's inflation rate eased to 5.5 percent in November from a 2014-high of 5.7 percent in October but remains above the central bank's target of 3.0 percent, plus/minus one percentage point. Last month the central bank admitted that it was surprised by the rise in October inflation.
    Like many other emerging markets, Chile's currency has come under downward pressure in recent months in relation to the U.S. dollar that is supported by the U.S. Federal Reserve's gradual normalization of monetary policy due to improving economic growth.
    A lower peso tends to raise import prices and thus inflation. Since the beginning of November, the depreciation of the peso has picked up speed. Today the peso was trading at 616.75 to the dollar, down almost 15 percent this year.
    Chile's Gross Domestic Product expanded by 0.4 percent in the third quarter from the second quarter for annual growth of 0.8 percent, the fourth quarter in a row with falling growth rates. But unemployment has dropped in the last two months, falling to 6.4 percent in October from 6.6 percent in September and a 2014-high of 6.7 percent in August.


    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, recent information confirms the outlook of good economic performance
in the United States and slower growth and low inflation in the Eurozone and Japan, a
development that has widened the expected differences in the monetary policy
implemented by those economies. Growth forecasts for emerging Asia have been
revised down slightly, while for Latin America weak performance is confirmed in the
larger part of the region. The prices of commodities receded, with a significant drop in
the oil price standing out. The copper price posted a smaller decline.

Output, demand, and employment indicators continue to reveal the low dynamism of
the Chilean economy. Local financial conditions reflect the impact of the monetary
stimulus. Annual inflation dropped, but it remains above 5% and core indicators are
above 4%. In the most likely scenario inflation will stay above the upper bound of the
tolerance range still for some months. The evolution of prices will continue to be
monitored with special attention. Medium-term inflation expectations remain 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."

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