Chile: BCCh remained on hold, as expected; all eyes on the IPoM next week

Chile: BCCh remained on hold, as expected; all eyes on the IPoM next week

Florencia Vazquez - Market Economics
Latam Macro Snapshot | 13 Dec 2012 22:52 |

Chile’s central bank decided to keep the policy rate unchanged at 5% at today’s monetary policy meeting. The decision stood in line with both our forecast and the median estimate from the Bloomberg survey.

The statement contained few changes from the November one, also as expected. Importantly, the neutral bias was kept unchanged, suggesting that no policy rate changes should be expected near term — in line with our forecast. Regarding the medium term outlook, the monetary policy report to be unveiled next week will likely provide relevant information on official views on growth and inflation. Market attention will thus focus on it. We expect BCCh to embark on a gradual tightening cycle in H2 2013 as growth and price pressures accelerate.

On the domestic front, the monetary authority continued to highlight that both economic activity and domestic demand indicators had stood above expectations in Q3. BCCh did not make any comments on October’s soft monthly GDP proxy print. Separately, labor market conditions continued to be characterized as tight.

On the inflation front, the central bank highlighted that the negative CPI reading in November reflected specific, one-off factors. The central bank also expressed comfort by underscoring once again that inflation expectations remain aligned with the official 3% target in the relevant policy horizon (2 years) and that underlying inflation stands close to 2% (the lower bound of BCCh’s tolerance range). The central bank also mentioned that the peso had strengthened vs. the US dollar.

The characterization of the external context was largely unchanged. Among the few changes, BCCh highlighted that international financial conditions are slightly more favourable compared to a month ago, that the USD had weakened and that the Federal Reserve had reinforced the monetary stimulus. Risks and uncertainty around the Eurozone’s fiscal and financial situation and the fiscal cliff in the US were mentioned again this month.

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Florencia Vazquez

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