Description

The main purpose of the Central Bank of Chile’s monetary policy is to keep inflation low, stable and sustainable over time. Its explicit commitment is to keep annual CPI annual inflation at around 3% most of the time, within a tolerance range of plus/minus one percentage point. To meet this target, the Bank orients its monetary policy at keeping projected inflation at 3% y-o-y over a policy horizon of around two years. Controlling inflation is the means by which monetary policy contributes to the population’s welfare. Low, stable inflation enhances economic activity and growth, while preventing the erosion of personal income. Further more, monetary policy’s inflation targeting focus helps to moderate fluctuations in national employment and output.

The main objectives of the Monetary Policy Report are: (i) to inform and explain to the Senate, the government and the general public about the Board’s views on recent and expected inflation trends and their consequences for the conduct of monetary policy; (ii) to publicly disclose the medium- term analytical framework used by the Board of the Central Bank of Chile to formulate monetary policy; and (iii) to provide information that can help guide market players’ expectations on the future inflation and output trends. This Report responds to an obligation under the Bank’s Basic Constitutional Act to report to the Senate and the Minister of Finance (Section 80).

The Monetary Policy Report is published three times a year, in January, May and September, and it focuses on the main factors that influence the inflation trajectory. These include the international environment, financial conditions, prospects for aggregate demand, output and employment, and recent price and cost developments. The last chapter summarizes the results of this analysis in terms of both prospects and risks affecting inflation and economic growth over the next eight quarters. The Report also provides several boxes that offer more detailed information on issues relevant to evaluating inflation and monetary policy.

The Board approved the Spanish version of this Report at its meeting on 9 May 2008 for presentation to the Senate’s finance commission on 12 May 2008.