Chilean source speeds up withdrawal of monetary stimulus worry about inflation

Santiago de Chile, December 14 (EFE). With year-over-year inflation at the highest level since 2008 and the outlook for next year not very encouraging, Chile’s central bank accelerated the withdrawal of monetary stimulus on Tuesday and raised its benchmark interest rate by 125 points.

Unanimously and as expected by the markets, the issuer’s board raised the so-called monetary policy rate (MPR) from 2.75% to 4%, the highest level since 2014.

The source explained that the historical adjustment “will help the economy resolve the imbalances it has accumulated (…) and that the recent inflationary dynamics do not have a lasting impact on the price formation process.”

Shortly after the coronavirus outbreak in Chile in March 2020, the bank made a drastic rate cut to an all-time low of 0.5%.

The increase in MPR began in July, when the agency raised it by 25 points and the pandemic began to grip it, then revised it to 1.5% in August and 2.75% in October.

Both the October high and the current high (125 points each) are the most important movements since the emergence of the nominal popular movement in August 2001, according to experts.

“MPR will continue to increase in the short term, to be above its nominal neutral level, which is in line with the 3% inflation target,” the source said in a statement.

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The economic assistance provided by the Chilean government to mitigate the impact of the pandemic, as well as the three expected withdrawals of 10% of pension funds approved by Parliament to tackle the crisis, increased domestic demand “more than expected, highlighting the high momentum of private consumption,” the bank noted. .

Inflation has risen significantly for months and there is growing concern among the authorities and consumers, although it is a common situation in most countries.

The Chilean institution indicated that “more central banks joined in withdrawing the large monetary stimulus that were applied during the crisis, to modify the vision of the current temporary inflation.”

Chile’s Consumer Price Index (CPI) rose 0.5% in November, accumulating 6.3% so far this year and 6.7% in 12 months, its highest number since December 2008.

Although the inflation rate is expected to decline by 2023, the issuer stated in the same statement that “in 24 months, it will be above 3%.”

The Organization for Economic Co-operation and Development (OECD) warned two weeks ago of the risks of inflation due to increased private consumption and emphasized that the central bank should continue to raise interest rates “to ensure that inflation returns to its target”.

With the majority of its population vaccinated, Chile has given up on the worst moments of the pandemic, shrinking the economy by 5.8% in 2020, the worst drop in four decades, and causing nearly two million job losses.

The monthly indicator of economic activity (Imacec), which is an advance of GDP, grew in October by 0.8% monthly and 15% year-on-year, while the central bank estimates GDP growth for this year at between 10, 5% and 11.5%.

The Chilean Source movement is happening before Chileans elect at the polls next Sunday to succeed the former president, conservative Sebastian Pinera.

Inflationary pressure has been one of the main themes of the campaign to reach La Moneda, where hard-line lawyer Jose Antonio Caste and left-wing MP Gabriel Boric compete. EFE

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