Chile holds rate after inflation rises more than expected

     Chile's central bank maintained its monetary policy rate at 3.0 percent and repeated its 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 its rates steady this year after cutting them by 150 basis points last year, added that inflation in June rose more than expected, surpassing the 4.0 percent mark, pushing up inflation expectations one year ahead but for two years ahead they remained steady.
    "The evolution of inflation will continue to be monitored with special attention," the bank said.
    Chile's headline inflation rate rose to 4.4 percent in June from 4.0 percent in May, continuing to remain above the bank's upper tolerance range. The central bank targets inflation of 3.0 percent, plus/minus 1 percentage point.
    Chile's inflation rate has been boosted by a depreciation of the peso while output and demand has been weaker than the central bank had assumed and private growth expectations have been cut.
    The peso was trading at 642.3 to the U.S. dollar today, down 5.6 percent year to date.
    Last month the central bank cut its 2015 growth forecast to 2.25 - 3.25 percent from a previous 2.5 - 3.5 percent and forecast inflation this year of 3.4 percent.
    Chile's Gross Domestic Product expanded by an annual 2.41 percent in the first quarter of this year, up from 1.82 percent in the fourth quarter of 2014.


    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, the biggest news has been the volatility of financial markets, associated to developments in Greece and China, which has tended to moderate most recently. In this context, after a significant drop during the month, the prices of the risker assets showed a substantial recovery in recent days. The dollar appreciated around the world. The prices of commodities, particularly copper and oil, declined.
 Domestically, in June the CPI rose more than expected and in annual terms surpassed the 4% mark again. One year ahead, market expectations increased, but two years ahead they remained unchanged. The evolution of inflation will continue to be monitored with special attention.
Meanwhile, output and demand have been weaker than assumed in the Monetary Policy Report’s baseline scenario, and private growth expectations have dropped for this and next year. Confidence indicators have not recovered. In the labor market, job creation remains bounded and nominal wages have decelerated.
At the same time, 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."

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