Wednesday June 13 2018
Chile Keeps Interest Rate Steady at 2.50%
Mario | mario@tradingeconomics.com

The Central Bank of Chile held its benchmark interest rate at 2.50 percent on 13 June 2018, in line with market expectations. The decision was unanimous. Policymakers underscored that emerging market currencies have depreciated in the recent months, and that prices of commodities have gone up. The central bank expects to keep the monetary stimulus at its current level until inflation converges towards 3 percent. The annual inflation rate in Chile increased to 2.0 percent in May of 2018 from 1.9 percent in the previous month.

Statement from the Central Bank of Chile:

The outlook for global growth shows no big changes and points to an expansion that on average will outperform that of the last three years. In the United States, data on prices, employment and wages suggest inflationary pressures have increased, as opposed to developments in Europe, where inflationary pressures appear more bounded. This has caused market expectations to anticipate a process of faster normalization of the US federal funds rate, and has sustained the strengthening of the dollar in multilateral terms. In its June meeting the Federal Reserve increased the policy rate for a second time this year. 

In this context, lower risk appetite has been observed, causing a depreciation of emerging economies’ currencies, and in several of them spreads and long-term interest rates have increased. In any case, the growth forecasts have not changed significantly and most short-term indicators are generally stable. Exceptions are some countries in Latin America where adjustments to financial conditions have combined with idiosyncratic factors, giving way to downward revisions to their growth projections. Such are the cases of Argentina and Brazil.

Regarding commodities, in recent days the copper price has risen significantly to near US$3.3 per pound. According to market reports, this rise would be transitory. 

Activity and demand prints published since the last Meeting confirm a sustained recovery of the economy. The higher figures for the first four months of the year reflected the low base of comparison twelve months ago, the improved performance of several investment-related activities and some durables, as well as supply factors that are considered transitory. The labor market continues to show a lagged behavior regarding activity, in particular because of weak creation of private salaried employment. In contrast, imports—of both consumer and capital goods—remain dynamic, business confidence (IMCE) and consumer confidence (IPEC) are at their best in several quarters, and financial conditions remain loose. In this context, compared with the last Meeting, the Economic Expectations Survey (EES) rose the expected growth for this year and next, in both cases to 3.8% (3.6% and 3.7% according to the April EES, respectively).

The annual inflation of the CPI remained around 2% and the CPIEFE at 1.6%. The inflationary dynamic is still determined by the evolution of the exchange rate, in an economy where capacity gaps remain and by indexation to lower inflation rates. With this, the annual variation of the CPIEFE for goods persists in slightly negative territory and for services remains close to 3%. Inflation expectations have increased at shorter terms, approaching 3% one year head, coinciding with the higher price of oil and the peso depreciation of recent months. Two years ahead they are still around 3%.

The Board’s decision considered that both the latest data and the analysis in June’s Monetary Policy Report point to decreased risks for inflation convergence. On the one hand, the recovery of the economy continues to consolidate and, on the other, perspectives for short term inflation have been revised upwards mainly due to the peso value of oil. Notwithstanding, CPIEFE inflation will have a similar path to the one forecasted in March in a line with an economy that still has capacity gaps. The Board foresees that the monetary stimulus will around its current levels and will start to decrease as macroeconomic conditions keep driving inflation convergence towards 3%. Thus, the Board reaffirms its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the two-year policy horizon. 




Friday May 18 2018
Chile Q1 Annual GDP Growth Strongest Since 2013
Banco Central de Chile | Luisa Carvalho | luisa.carvalho@tradingeconomics.com

The gross domestic product of Chile expanded 4.2 percent year-on-year in the first quarter of 2018, quickening from a 3.3 percent advance in the previous period and slightly above market expectations of a 4.0 percent growth. It was the fastest expansion since the third quarter of 2013, as household spending, fixed investment and exports rose significantly. Among economic activities, the mining sector was the main contributor to growth.

Year-on-year, household spending grew at a faster 3.9 percent, up from a 3.0 percent increase in Q4. Also, fixed investment continued to rise (3.6 percent from 2.7 percent), as construction investment rebounded (2.0 percent vs -1.7 percent) while that in machiney and investment slowed (6.5 percent vs 10.8 percent). Also, net external trade contributed positively to growth as exports jumped (7.2 percent vs 2.5 percent) and imports advanced at a softer pace (6.1 percent vs 5.2 percent). On the other hand, government spending increased less (2.7 percent vs 3.4 percent).

On the production side, output increased solidly in: mining and quarrying (19.3 percent vs 6.8 percent), boosted by both copper production (20.6 percent vs 7.9 percent) and other mining activities (8.4 percent vs -3.2 percent); internal trade (6.0 percent vs 4.7 percent); restaurants & hotels (3.6 percent vs 2.1 percent); transportation (4.9 percent vs 3.8 percent); financial services (4.1 percent vs 3.3 percent); business services (3.5 percent vs 1.2 percent); personal services (4.6 percent vs 4.1 percent) and utilities (5.7 percent vs 5.4 percent). Also, the construction sector rebounded sharply (3.2 percent vs -0.1 percent), posting the strongest gain since the third quarter of 2016 (3.6 percent). Conversely, production slowed in information and communication (3.1 percent vs 4.9 percent); real estate activities (2.2 percent vs 2.3 percent); manufacturing (2.8 percent vs 3.5 percent); while it shrank in agriculture (-2.3 percent vs -0.7 percent) and fishing (-6.5 percent vs 4.6 percent).

On a seasonally adjusted quarterly basis, the GDP expanded 1.2 percent, after an upwardly revised 0.7 percent rise in the fourth quarter and slightly above market expectations of a 1 percent growth.




Thursday May 03 2018
Chile Leaves Monetary Policy Unchanged
Central Bank of Chile | Joana Taborda | joana.taborda@tradingeconomics.com

The Central Bank of Chile held its benchmark interest rate at 2.50 percent on May 3rd 2018, in line with market expectations. Policymakers said that inflation is seen low during most of 2018, to then advance more robustly toward the target during next year. The central bank expects to keep the monetary stimulus at its current level until inflation converges towards 3 percent. In March, the inflation eased to 1.8 percent from 2 percent in February.

Excerpts from the Central Bank of Chile Press Release:
 
The latest data on activity and demand are consistent with the baseline scenario of the March Report. First-quarter growth in activity was significantly influenced by the increase in mining, favored by the low basis for comparison. Activity in the other sectors maintained the better performance of previous months, where worth highlighting was the greater contribution of several investment-related sectors. Investment in construction and other works continues to recover, while exports continue to grow in the main areas, consumer and business confidence are still in optimistic levels and financial conditions are comfortable. However, private salaried employment has yet to recover and nominal wages have decelerated in annual terms, which could take a toll on wage mass growth and possibly on consumption. The Economic Expectations Survey (EES) of April showed no major changes in expected growth for this year and next, both somewhat above 3.5%.
 
Annual CPI inflation declined to 1.8% in March, while core inflation—the CPIEFE—was again 1.6%, with minor differences with the last Report’s estimates. Its evolution, as has been the trend of the last few quarters, continues to be driven by the appreciation of the peso, the current state of capacity gaps and indexation to lower inflation rates. Y-o-y change in CPIEFE for goods persists in slightly negative ground, and for services it remains near 3%. Inflation expectations showed no significant changes. Accordingly, expectations one year ahead as measured by analysts’ surveys stand between 2.5% and 2.7% and two years ahead, between 2.8% and 3.0%.
 
The Board’s decision considered that inflation will remain low during the better part of 2018, to then advance more robustly toward the target during next year, consistently with a gradual closure of capacity gaps. The Board foresees that it will keep the monetary stimulus at its current level until macroeconomic conditions tend to consolidate the convergence of inflation towards 3%. The persistence of inflation at low levels, especially its core component, means that the risks of not achieving the target within the policy horizon remain, a situation that will continue to be monitored with special care. Thus, the Board reaffirms its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the two-year policy horizon.



Tuesday March 20 2018
Chile Keeps Interest Rate at 2.50%
Mario | mario@tradingeconomics.com

The Central Bank of Chile held its benchmark interest rate at 2.50 percent on 20 March 2018, as widely expected, saying risks to the economic activity have receded since last meeting and that lower commodity prices and little change in the peso have contributed to a stable inflation outlook. Consumer prices in Chile increased 2.0 percent in February of 2018, easing from a 2.2 percent gain in the previous month.

Statement from the Central Bank of Chile:

Internationally, the relevant scenario for the Chilean economy has continued to improve, adjusting to greater prospects for global growth, mainly in the developed world. In the United States, there is also the boost to demand associated with the tax reform approved by Congress. Inflation has remained contained in much of the developed world, although it is worth noting that some countries have revised upwards their forecasts for 2018. In the US, actual and projected data on activity and inflation have driven up the expected Fed funds rate. The discussion on the normalization of the monetary impulse in other developed economies has also taken shape.

In the global financial markets, the increase in volatility and the sharp correction in the prices of risky assets in early February stood out. Although financial conditions remain favorable, the main stock markets have not recovered their previous levels. The improved growth outlook has favored the rise of long rates, especially in the US and, to a lesser extent, in other developed countries. In the emerging world, especially in Latin America, the evolution of risk premiums, stock markets, volatility indicators and capital flows to their economies remains positive.

Commodity prices have fallen since the last Meeting. The oil price dropped somewhat more than 6%, owing mainly to news pointing to better supply-side conditions. In turn, the copper price, with fluctuations during the period, posted a drop around 2%. However, the two prices are still above their year-ago levels and their averages foreseen at the end of 2017.

Inflation has performed as expected, remaining around 2% annually for headline inflation and close to 1.5% for its core measure CPIEFE. As has been the trend in recent quarters, the inflationary dynamic has been dominated by the appreciation of  the peso over the period. Annual inflation of the goods in the CPIEFE basket is in slightly negative figures, while that of the services component has gradually decreased over the last year and stands near 3%. Inflation expectations showed limited movements. While the short-term expectations have adjusted downward somewhat, at two years they show no big changes from the data analyzed in the last Meeting.

The Board's decision considered that both the latest data and the analysis contained in the March Report suggest that the risks for the convergence of inflation to 3% have moderated in the policy horizon, largely due to the implications that the better economic outlook has on the process of closing the capacity gaps. However, the evolution of the exchange rate in the coming months will cause inflation to be lower than expected in December, a situation that the Board will continue to monitor with special care, considering that it might jeopardize the convergence of inflation to the target over the policy horizon. Likewise, the Board reiterates its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the two-year horizon. 



Monday March 19 2018
Chile Economy Grows the Most Since 2013 in Q4
Banco Central de Chile | Luisa Carvalho | luisa.carvalho@tradingeconomics.com

The gross domestic product of Chile advanced 3.3 percent year-on-year in the fourth quarter of 2017, following an upwardly revised 2.5 percent rise in the prior period and beating market expectations of a 2.9 percent growth. It was the fastest expansion since the third quarter of 2013, as household spending increased faster and fixed investment rebounded.

Year-on-year, household spending expanded at a faster 3 percent, compared to a 2.2 percent increase in Q3. Also, fixed investment rebounded (2.7 percent from -0.9 percent in Q3), the first gain in five quarters, as investment in machinery and equipment grew markedly (10.8 percent from 8.1 percent) while construction investment shrank much less (-1.7 percent from -5.9 percent). In contrast, government spending continued to slow (3.4 percent from 3.7 percent). Exports went up 2.5 percent, following a 2.7 percent rise in Q3 while imports advanced at a stronger 5.2 percent compared to a 2 percent increase in Q3.

On the production side, output continued to grow for: manufacturing (3.5 percent from 2.6 percent); utilities (5.4 percent from 3.8 percent); internal trade (4.7 percent from 4.6 percent); restaurants and hotels (2.1 percent from 1.5 percent); transportation (3.8 percent from 3.3 percent); information and communication (4.9 percent from 4.6 percent) and personal services (4.1 percent from 2.8 percent). In addition, production fell less for agriculture (-0.7 percent from -2.7 percent); construction (-0.1 percent from -5.3 percent) while activity recovered for business services (1.2 percent from -0.4 percent). On the other hand, output slowed for mining (6.8 percent from 8.3 percent), mainly due to lower production of copper (7.9 percent from 9.1 percent); financial services (3.3 percent from 5.1 percent) and real estate activities (2.3 percent from 2.9 percent).

On a quarterly basis, the GDP inched up 0.6 percent, after an upwardly revised 2.2 percent gain in the third quarter and slightly above market expectations of a 0.5 percent rise.

Considering whole 2017, the Chilean economy grew 1.5 percent compared to 1.3 percent in 2016. Still, growth was among the lowest since the 2009 global economic crisis.


Friday February 02 2018
Chile Holds Policy Rate at 2.5%
Central Bank of Chile | Joana Ferreira | joana.ferreira@tradingeconomics.com

The Central Bank of Chile held its benchmark interest rate at 2.50 percent on February 1st, 2018, as widely expected, saying risks to the economic activity have receded since last meeting and inflation is expected to remain below previous forecasts due to a stronger peso. Chile's inflation for 2017 was 2.3 percent, the lowest in five years and below the bank's target of 3 percent.

Excerpts from the statement of the Central Bank of Chile:

Activity indicators for the fourth quarter of 2017 are somewhat better than expected in the baseline scenario of December’s Monetary Policy Report, with important surprises in some sectors associated with investment, which slightly outperformed the Banks’ estimates. Consumption maintains the trend of previous months, with stronger growth in sales of durable goods, particularly automobiles. Annual growth in non-durable consumption is rather sluggish, but has picked up in recent months. The wage bill, growing at a pace close to 3.5%, continues to sustain the expansion of consumption. Mining and industrial exports ended the year with significant growth rates in terms of both value and volume, reversing the trend of previous quarters. Salaried employment has increased its annual variation rate, reflecting growth in public hiring. The unemployment rate declined in its latest print, but remains above year-ago levels. Annual growth in nominal and real wages is fairly unchanged at levels around 4.5% and 2.5%, respectively. In this context, private growth expectations increased, as did confidence indicators.

Inflation has brought no big surprises and remains around 2% annually for both headline and core CPI (CPIEFE). Its evolution continues to reflect the impact of the exchange rate drop over the last few months, the poor dynamism of activity and the effects of some particular shocks. The annual variation of the goods CPIEFE is around 0% and the services index variation is close to 3%. Among the more volatile prices, fruits and vegetables went back to slightly positive annual growth. Inflation expectations had limited movements. While in the short term they have been adjusted downward somewhat, at two years they show no change with respect to the previous Meeting.

The Board’s decision estimates that incoming data is consistent with the baseline scenario of December’s Report. At the same time, some of the risks identified therein have diminished. In particular, the latest activity figures make it more likely that the economy will achieve the expected traction, while domestic financial conditions remain favorable. Thus, despite inflation expected to be somewhat below previous forecasts for some months, mainly due to the evolution of the exchange rate, the threats to its convergence to 3% have been attenuated in the margin. In this context, the Board considers that the general orientation of monetary policy outlined in the Monetary Policy Report is still adequate. That is, a monetary impulse that will remain fairly unchanged, and that withdrawal will only begin once the closing of the gaps is consolidated.

In any case, the Board will pay special attention to any signs of a delay in the convergence of inflation that might warrant an additional monetary impulse. It also reaffirms its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the two-year horizon.


Thursday December 14 2017
Chile Holds Interest Rate Unchanged for 7th Meeting
Mario | mario@tradingeconomics.com

Chile’s central bank kept the benchmark interest rate unchanged at 2.50 percent on 14 December 2017, leaving the rate unchanged for the seventh straight meeting. The outcome matched consensus expectations, and leaves the interest rate at its lowest level since September of 2010. Policymakers underscored that the global outlook remained practically unchanged since the previous meeting. They also mentioned that investment remains subdued, mainly affected by construction activity. Chile's annual consumer price inflation was 1.9 percent in November 2017, unchanged from October.

Statement by the Central Bank of Chile:

On the external front, activity figures in the developed world continue to point to a synchronized recovery, although inflation rates that reamin low. Monetary policies have evolved as expected. In this context global financial conditions show no major changes. Commodity prices have evolved along dissimilar paths. The copper price, with ups and downs, is a little below its month-ago level. 

At home, in November the CPI rose 0.1%, keeping annual inflation at 1.9%. Meanwhile, the CPIEFE dropped 0.1% to 1.8% in annual terms. Inflation expectations stayed fairly unchanged. Activity and demand data for the beginning of the fourth quarter are in line with the Monetary Policy Report’s baseline scenario and continue to reflect the weak activity of non-mining industries and particularly of sectors relating to construction investment. Expectations of consumers and business are stable. The labor market continues to show dynamism of self-employment and weakness of salaried work. The peso and other financial variables have shown important movements in the last month.

Economic data made available after the December Report are consistent with the baseline scenario. However, the risks of a delay in the convergence of inflation associated to its current persistently low level are still present, so, if deemed necessary, the Board will promptly adjust the monetary impulse. Accordingly, it reiterates its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the two-year horizon.


Monday November 20 2017
Chile GDP Growth At 1-1/2-Year High in Q3
Banco Central de Chile | Luisa Carvalho | luisa.carvalho@tradingeconomics.com

The economy of Chile advanced 2.2 percent year-on-year in the third quarter of 2017, following an upwardly revised 1 percent growth in the previous period and matching market consensus. It was the strongest expansion since the first quarter of 2016, as household spending rose faster and exports rebounded while investment fell less.

Year-on-year, household spending increased 2.8 percent, higher than a 2.6 percent rise in Q2. Gross fixed capital investment contracted less (-2.3 percent compared to -4.6 percent in Q2), but marked the fifth consecutive quarter of declines. Construction investment fell 7.5 percent (-7.6 percent in Q2) and investment in machinery and equipment advanced at a faster pace (6.4 percent compared to 0.7 percent in Q2). Meanwhile, government spending slowed (2.2 percent compared to 3 percent in Q2). Exports rose 3 percent, recovering from a 3 percent decrease in Q2, as sales of industrial, agricultural and mining products rebounded. Meantime, imports went up at a softer 4.4 percent compared to a 6.7 percent surge in Q2.

On the production side, mining activity rebounded sharply (7.5 percent compared to -3 percent), mainly driven by copper production (8.2 percent compared to -2.3 percent). Also, manufacturing grew faster (1 percent compared to 0.4 percent), boosted by stronger production of wood and furniture; crude oil refining and metal products, machinery and equipment. In addition, higher growth rates were also recorded for: fisheries (14 percent compared to 8.9 percent in Q2); internal trade (4.4 percent compared to 3.5 percent); utilities (4.1 percent compared to 0.8 percent); transport (2 percent compared to 0.8 percent); financial services (4.3 percent compared to 3.6 percent) and personal services (3.1 percent compared to 2.8 percent). On the other hand, output grew less for restaurants and hotels (0.9 percent compared to 1.1 percent); communication and information (3.8 percent compared to 4 percent); real estate activities (2.5 percent compared to 2.9 percent) and public administration (1.8 percent compared to 2.3 percent). Meantime, output declines were recorded for agriculture (-1.3 percent compared to 0.3 percent); construction (-6 percent compared to -3.7 percent) and business services (-1.7 percent compared to -2.3 percent).

On a quarterly basis, the GDP expanded 1.5 percent, following an upwardly revised 0.9 percent growth in Q2.


Wednesday November 15 2017
Chile Holds Interest Rate Unchanged for 6th Meeting
Mario | mario@tradingeconomics.com

Chile’s central bank kept the benchmark interest rate unchanged at 2.50 percent on November 14th of 2017, leaving the rate unchanged for the sixth straight meeting. The outcome matched consensus expectations, and leaves the interest rate at its lowest level since September of 2010. Policymakers underscored that the global outlook remained practically unchanged since the previous meeting. They also mentioned that investment remains subdued, mainly affected by construction activity. Chile's annual consumer price inflation rose to 1.9 percent in October 2017 from a four-year low of 1.5 percent in September.

Statement by the Central Bank of Chile:

On the external front, third-quarter activity figures are consistent with a more dynamic scenario. Global financial conditions show no major changes. The oil price increased in recent weeks, while the copper price declined slightly, but it is still above expectations.

At home, October’s CPI inflation of 0.6% exceeded the forecast, partly undoing the negative surprise of September, and placing annual inflation at 1.9%. Inflation expectations at short terms remain low, and medium-term expectations have remained constant. Third-quarter data at hand show the evolution of activity and demand in line with the latest Monetary Policy Report’s baseline scenario. Private consumption has performed in line with the labor market’s evolution and with not-so-pessimistic expectations. Investment is still weak, affected by construction activity.

Activity figures made available after the September Report are consistent with the baseline scenario and the monetary impulse depicted therein. However, inflation will remain low in the short term. This could delay its convergence to the target within the two-year horizon. The Board will pay special attention to this risk—already identified in the Report—as it could require adjusting the policy rate. At the same time, the Board reiterates its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the two-year horizon.



Thursday October 19 2017
Chile Keeps Key Rate Steady Despite September Disinflation
Mario | mario@tradingeconomics.com

Chile’s central bank kept the benchmark interest rate unchanged at 2.50 percent on October 18th of 2017, leaving the rate unchanged for the fifth straight meeting. The outcome matched consensus expectations, and leaves the interest rate standing at its lowest level since September of 2010. Policymakers underscored that economic conditions keep slightly improving and that no major surprise was observed since the September meeting, excluding the CPI’s downturn, which according to members of the monetary committee could trigger an adjustment to the policy rate. Chile's consumer prices increased 1.5 percent year-on-year in September of 2017, easing from 1.9 percent in the previous month. It was the lowest inflation rate since October of 2013.

Statement by the Central Bank of Chile:

On the external front, global activity and prospects brought no big news, and the signs of stronger dynamism remain. Global financial conditions remain favorable. The main development of the month was the increase in some commodity prices, especially copper and oil.

On the domestic front, September’s CPI inflation was surprisingly low, pulling its y-o-y change to 1.5%. While inflation expectations at shorter terms declined significantly, at longer terms they saw limited adjustments. Third-quarter data at hand show activity and demand behaving in line with the latest Monetary Policy Report’s baseline scenario, and the better performance of consumer-related sectors relative to investment-related ones continues to stand out. The behavior of private consumption reflects the evolution of the labor market and expectations becoming less pessimistic.

Activity figures made available after the September Report are consistent with the baseline scenario and the monetary impulse depicted therein. However, incoming inflation figures point to it falling short of expectations in the short term. This could delay its convergence to the target within the two-year horizon. The Board will pay special attention to this risk—already identified in the Report—as it could require adjusting the policy rate. At the same time, the Board reiterates its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the two-year horizon.