Chilean Central Bank To Maintain Dovish Stance Despite Uptick In Inflation In Quarters Ahead
- The Banco Central de Chile (BCC) will hold its benchmark policy rate at 0.50%, its technical minimum, and keep in place a suite of unconventional policies through end-2021 in an effort to support Chile’s economic recovery.
- However, the agency has revised up its end-2022 policy rate forecast to 1.25%, from 0.75%, due to its more optimistic outlook for economic activity in Chile. In addition, it also increased its 2021 average inflation forecast to 3.2%, from 3.1% previously, as it expects base-effects and rebounding private consumption to push price growth above the 3.0% midpoint of the BCC’s target inflation band in Q221 and Q321.
- The risks to the forecast are weighted to the upside as higher inflation could push the BCC to tighten sooner than currently expected. Supply chain bottlenecks amid the continued global spread of Covid-19 and robust consumer demand could lead to a multi-month upsurge in inflation beyond the 4.0% upper bound of the BCC’s inflation target band. If inflation expectations shifted upwards, the BCC is expected to begin tightening monetary policy to contain price growth.
(Source: Fitch Solutions)