Chile: BCCh kept policy rate unchanged at 5.0% and issued little changed statement

Chile: BCCh kept policy rate unchanged at 5.0% and issued little changed statement

Florencia Vazquez - Market Economics
Latam Macro Snapshot | 17 Jan 2013 21:47 |

Chile’s central bank decided to keep the policy rate unchanged at 5.0% at today’s monetary policy meeting. The decision stood in line with both our forecast and the consensus. January is the 12th straight month of no changes to the policy rate after the monetary authority eased 25bp in January 2012.

Importantly, the neutral bias was kept unchanged, suggesting that no rate changes are likely near term. This stands in line with our forecast that only pencils in the start of a gradual tightening cycle later in the year.

On the domestic front, the central bank highlighted that “activity and demand indicators have evolved in line with the base case scenario unveiled in the latest monetary policy report”. And while the labour market continued to be characterized as tight, this time the monetary authority went further and added that “employment growth had accelerated and that nominal wages had kept a dynamic pace”.

On inflation, while both headline and core measures currently stand below 2% (the lower bound of BCCh’s 2-4% tolerance range), the central bank expressed comfort by adding that “inflation expectations at the relevant 2-year policy horizon remain aligned with the 3% official target”.

Lastly, regarding the actively debated topic of the local currency, the monetary authority only mentioned that “the CLP had appreciated slightly vs. the USD”. This comment — coupled with the one included in the preview for the meeting stating that the peso’s trajectory had not differed visibly from that of currencies in other commodity exporting countries in the region — suggests that the monetary authority is in no rush to intervene to curb peso appreciation pressure.

Lastly, on the external front, BCCh underscored that financial conditions are currently more favourable than one month ago, even though risks in the Eurozone remain elevated and fiscal concerns in the US — albeit having moderated — remain relevant. The central bank also repeated that weak growth conditions in developed economies continued and this time highlighted the more positive signals coming from China (in the previous statement BCCh had referred more broadly to emerging countries).