Chile maintains rates, changes hinge on inflation outlook

    Chile's central bank maintained its monetary policy rate at 3.0 percent and repeated its recent guidance that "any future changes in the monetary policy rate will depend on the implications of domestic and external macroeconomic conditions on the inflationary outlook."
    The Central Bank of Chile, which has kept rates steady this year after cutting them by 150 basis points in 2014, said the latest data was as expected, with inflation in line with forecasts and expected to remain high for some months.
    "Its evolution will continue to be monitored with special attention," the central bank said about inflation which eased to 4.0 percent in May, the seventh month in a row of disinflation after consumer price inflation surprised the central bank by rising to a 2014 high of 5.7 percent in October 2014, boosted by a depreciation in the peso
   The rise in inflation last year forced the central bank to shift into a neutral stance after cutting rates by 200 basis points between October 2013 and October 2014 in response to slower global growth and lower demand from China, which led to a fall in copper prices.
   In April the central bank's president, Rodrigo Vergara, said his assumption was that policy rates would begin to be raised toward the end of 2015 or the start of 2016.
    In its policy statement last month the central bank also said any future policy changes would depend on the outlook for inflation. Earlier this month the central bank cut its 2015 growth forecast and said it could take longer than expected to start raising rates as growth had been weaken than previously forecast and inflation had declined faster than expected.
   In its quarterly policy report, the central bank trimmed its 2015 growth forecast to 2.25-3.25 percent from 2.5-3.5 percent and forecast annual inflation this year of 3.4 percent, down from 3.6 percent.
    Chile's Gross Domestic Product expanded by 1.04 percent in the first quarter of 2015 from the fourth quarter for annual growth of 2.41 percent, up from 1.82 percent in the fourth quarter and 1.0 percent in the third quarter.


    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, data received after the publication of the Monetary Policy Report confirm the gradual recovery of growth for the rest of the year. Long-term rates and risk premiums increased in most countries, while stock indexes dropped. Capital flows to most emerging-market economies declined.
The dollar appreciated around the world. Commodity prices posted mixed movements, and the price of copper fell.
Domestically, incoming information is consistent with the baseline scenario of the Monetary Policy Report. In May, inflation was in line with forecasts and is expected to post high annual rates for some months. Its evolution will continue to be monitored with special attention. Medium-term inflation expectations remain at 3%. Growth in employment and in the labor force is still low, and the unemployment rate remained unchanged. Growth in nominal wages dropped in annual terms and the peso 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."

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