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 inflation most of the time at around 3% 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 by 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 main objectives of the Monetary Policy Report are: (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 medium-term analytical framework used to formulate monetary policy; and (iii) to provide information that can help shape market players’ expectations on future inflation and output trends. According to 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 that shed light on more detailed aspects of matters relevant to evaluating inflation and monetary policy.

This Report was approved at the Board meeting held on 8 September for its presentation to the Senate on 11 September 2008.