Chile cuts rate another 25 bps, strikes neutral guidance

    Chile's central bank cut its monetary policy interest rate by a further 25 basis points to 2.50 percent and signaled a neutral policy stance by saying 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 has now cut its rate four times this year by a total of 100 basis points amid rising unemployment, decelerating economic growth and stable inflation.
     The central bank said economic activity and demand in the first quarter of this year was in line with its expectations, illustrating the negative impact from mining and construction. But private consumption is stable, reflecting the labour market.
      Chile's Gross Domestic Product dropped to an annual growth rate of 0.1 percent in the first quarter of this year, down from 0.5 percent in the fourth quarter for the lowest growth rate since 2009 as private consumption eased and exports shrank after a strike at the Escondidada copper mine, the world's largest mine that produces about 5 percent of total global copper output.
     The strike, which ended in March, was estimated to lower Chile's growth by an entire percentage point in the first quarter of this year.
     The central bank has said it expects growth this year of 1-2 percent. The unemployment rate rose for the third month in a row to 6.6 percent in March.
      Chile's inflation rate was steady at 2.7 percent for the third month in a row in April and the central bank said expectations were near its target. The central bank targets inflation of 3.0 percent, plus/minus 1 percentage point.


    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 lower the monetary policy interest rate by 25 basis points, to 2.5%.

 Internationally, despite a recent increase in volatility, financial conditions have remained favorable and incoming figures continue to lend support to a scenario of stronger growth in the developed world. Commodity prices again showed mixed fluctuations, with a drop in the copper price. Overall, important risks persist.

On the domestic front, annual inflation remained at 2.7% and expectations at the end of the projection horizon are near the target. The activity and demand outlook depicted in the first-quarter National Accounts were in line with the March Monetary Policy Report, showing the negative impact of mining and construction. Private consumption is stable, reflecting the performance of the labor market.

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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