The central bank maintains the TPM at 2.5% and the next move is on the rise

At its meeting on monetary policy, the Council of the Central Bank of Chile agreed to keep the interest rate of monetary policy at 2.5%, maintaining the The intensity of the monetary pulse. The decision was adopted unanimously by its members.

On the international scene, important developments have taken place since the June Monetary Policy Report. First, the difference between the US cyclical position is deepened. and other developed countries. In the US economy, there is less and less relaxation, which is expressed mainly in the labor market, with figures of activity and inflation more and more different those of the euro area and Japan. This divergence contributed to the strength of the multilateral dollar. Second, the risks badociated with a scenario of trade conflict

between the United States intensified. and other economies, especially China. The entry into force of rate increases for certain goods by the United States. and the escalation of announcements and statements from various stakeholders affected the markets, with widespread decreases in the currencies of emerging and commodity exporters, a significant depreciation of the yuan and declines in commodity prices. Of these, copper stands out, about 15% since the June meeting. Despite all of the above, global growth projections have shown no change.

The Chilean peso depreciated according to the behavior of the multilateral dollar and the price of copper. Similarly, stock market indicators recorded declines, reflecting trends in international markets. However, long-term interest rates have remained relatively stable, unlike what has happened in most economies. Local risk premiums are at levels similar to those of the previous meeting and remain low in their historical perspective.

Market interest rates remain low and real credit growth remains limited, although the rise in the commercial portfolio in recent months. At the same time, slightly stronger demand is being seen in consumer segments and businesses

as well as less restrictive supply conditions for mortgages and large corporations.

Activity and demand figures after the June monetary policy report show a more dynamic performance in the lines related to investment, as evidenced by the evolution of the various sectors of the trade of wholesale, business services and manufacturing industry. The machinery and equipment component continues to concentrate the strongest momentum, which appears to be heavily focused on the mining sector. On the other hand, housing and non-construction indicators show a deceleration of the margin and expectations in this sector have returned to pessimistic ground. In terms of consumption, the dynamism of the sustainable sector continues to stand out, although with some slowdown in recent years. Consumer confidence shows further progress (IPEC), but the labor market remains lagging behind activity and wages are rising at rates below their historical averages. The GDP growth outlook for this year rose to 4% in July (3.8% in June), while it remained at 3.8% in 2019 and 2020.

The CPI annual inflation increased to 2.5% in June (2% in May), which corresponds to what had been anticipated and partly explained by the increase in annual change the most volatile components of the basket. The annual change in the IPCSAE index is 1.9%, with property inflation remaining slightly negative and services slightly above 3%. Market expectations on inflation have not shown any major changes, remaining around 3% at one and two years.

The decision of the Board considered that although the economy has shown greater dynamism than expected and the outlook for short-term, total inflation has been corrected upwards – mainly because of the exchange rate increase – the medium-term outlook contained in the June Monetary Policy Report does not change. However, the risks surrounding the international scenario and its negative implications have increased. The Council expects the rate of monetary policy to return to its neutral level in the coming quarters, in line with the working hypothesis used in the latest Monetary Policy Report. With this he reaffirms his commitment to conduct monetary policy flexibly, so that the projected inflation is 3% over the two-year horizon.

The minutes of this monetary policy meeting will be published at 8:30 am on Wednesday, August 8, 2018. The next monetary policy meeting will take place on Tuesday, September 4, 2018 and the corresponding press release will be issued from 18h00 this last day