Chile cenbank holds benchmark rate at 3.5%

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Wednesday, October 19, 2016

Chile's central bank stayed put Tuesday evening, maintaining the nation's key rate at 3.50%, where it has been since December 2015.

The monetary policy board pointed to the speed inflation is descending toward the 3% target, citing September data (3.1% annual inflation), in explaining its decision.

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"Various forecasting methods place inflation near the goal on the projected horizon," the bank said in a report.

"Future changes in [monetary policy] will depend on the implications internal and external macroeconomics have on the inflationary outlook," adding that, for now, inflation appears to be on track.

The bank said monetary and financial conditions continued to be favorable and long-term interest rates remained low, with indicators still suggesting a gradual recuperation in global growth in 2017.

"Though with ups and downs, raw materials prices rose in the month, particularly the price of oil," read the report, suggesting the potential for recuperation in exports for the country.

In a recent report, the central bank also noted a less restrictive credit environment in Chile, building potential for greater activity.

Chile's monetary policy group (GPM) – an independent advisory body formed by sector experts including academics – made suggestions to the central bank this week to hold the rate steady, according to local newspaper Diario Financiero, suggesting caution with this week's decision before, as other experts also suggest, making a cut in the next five to six months.

Finance minister Rodrigo Valdés, discussing such a move, recently coined the concept of "springtime effects", referring to small signs of economic renewal for Chile as precursors to an eventual rate cut.

GPM member Tomás Izquierdo said in the recommendation there could be a decrease in the benchmark rate in six months' time, but "there is a prudent recommendation to wait; there is no hurry."

The GPM's Gonzalo Sanhueza added that over the next three months "we do not see any space for lowering the interest rate" and that there are plenty of signs that "set the stage for the first quarter of 2017."