Chile holds rate, still monitoring inflation with attention

    Chile's central bank left its monetary policy interest rate unchanged at 3.50 percent and repeated that it is still monitoring "with special attention" the evolution of inflation, which remains above the 4 percent upper limit of its target range.
    The Central Bank of Chile, which raised its rate by 50 basis points last year, added that domestic output and demand continue to show limited growth, confidence indicators remain in pessimistic territory, growth in wages continue to moderate but the unemployment rate fell again.
     The central bank also repeated its phrase from recent months that indicates a tightening bias. It said the future path of its policy rate "considers measured adjustments" to ensure that inflation converges to its target of 3.0 percent, plus/minus 1 percentage point.
    Chile's consumer price inflation rate rose to a higher-than-expected 4.8 percent in January from 4.4 percent in December and core inflation rose to 4.9 percent from 4.7 percent while inflation expectations two years out remain at the bank's midpoint inflation target of 3.0 percent.
    The central bank also repeated its phrase from recent months that the future path of its policy rate "considers measured adjustments" to ensure that inflation converges to its target of 3.0 percent, plus/minus 1 percentage point.
    With Chile's economy suffering from the fall in commodity prices, especially copper, inflation is being fueled by depreciation of the peso.
    The peso has been falling since April 2013 and depreciated by 14.4 percent against the U.S. dollar in 2015. Today the peso was trading around 712.9 to the dollar, down 0.7 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 3.5%.
Abroad, sovereign risk premiums have risen, most of stock exchanges have intensified their drop and commodity prices have fallen again. The majority of currencies partially reverted their losses with respect to the U.S. dollar that occurred in the previous month. World growth forecasts have been reduced. In this context, some central banks have increased their monetary stimulus or have announced future actions in that direction. Long-term interest rates have decreased in advanced economies.
On the domestic front, January’s monthly CPI inflation was somewhat higher than expected, and in annual terms remained above 4%. Core inflation—the CPIEFE—is still close to 5% y-o-y. Inflation expectations two years out remain at 3%. The evolution of these variables will continue to be monitored with special attention. Available data during this month continue to show limited growth in domestic output and demand. Confidence indicators are still in pessimistic territory. The annual growth rate of salaried workers showed less dynamism, but the unemployment rate fell again. The annual wage growth kept moderating its pace.
The future path of the monetary policy rate considers measured adjustments aimed to ensure the convergence of inflation to the target, at a pace that will depend on incoming information and its implications on inflation. The Board reiterates its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the policy horizon."

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