Description

The main objective 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 inflation at around 3% most of the time, within a range of plus or minus one percentage point. To meet this target, the Bank focuses its monetary policy on keeping projected inflation at 3% annually over a policy horizon of around two years. Controlling inflation is the means through which monetary policy contributes to the population’s welfare. Low, stable inflation promotes economic activity and growth while preventing the erosion of personal income. Moreover, focusing monetary policy on achieving the inflation target helps to moderate fluctuations in national employment and output.

The Monetary Policy Report serves three central objectives: (i) to inform and explain to the Senate, the government, and the general public the Central Bank Board’s views on recent and expected inflation trends and their consequences for the conduct of monetary policy; (ii) to make public the Board’s mediumterm analytical framework used to formulate monetary policy; and (iii) to provide information that can help shape market participants’ expectations on future inflation and output trends. In accordance with Article 80 of the Bank’s Basic Constitutional Act, the Board is required to submit this Report to the Senate and the Minister of Finance

The Monetary Policy Report is published three times a year, in January, May, and September. It studies and analyzes the main factors influencing inflation, which include the international environment, financial conditions, the outlook for aggregate demand, output and employment, and recent price and cost developments. The last chapter summarizes the results of this analysis in terms of the prospects and risks affecting inflation and economic growth over the next eight quarters. Several boxes are included to provide more detail on issues that are relevant for evaluating inflation and monetary policy.

This Report was approved at the Board’s session on 11 May 2009 for presentation to the Senate Finance Committee on 13 May 2009.