Money plays a fundamental role in the proper functioning of any economy. To safeguard this role, the monetary policy of the Central Bank of Chile must protect the value of the national currency, the peso, aiming at keeping inflation stable and low.

The Central Bank of Chile structures its monetary policy employing a conceptual framework of inflation targets, which is complemented by a floating exchange rate regime. This entails the commitment to use the appropriate instruments to ensure that annual CPI inflation remains most of the time around 3%, with a tolerance range of plus/minus one percentage point.

This commitment directs the expectations of economic agents and transforms the center of the goal into the nominal anchor of the economy.

What is Monetary Policy?

One of the objectives that the Constitutional Organic Law entrusts to the Central Bank is “to ensure the stability of the currency”. In practice, this means that the Bank must prevent the devaluation of the currency due to inflation. Thus, it is interpreted as an objective of price stability. The set of actions taken by the Central Bank to meet this objective is called Monetary Policy.

What is the Monetary Policy Rate?

The Monetary Policy Rate is the main operational instrument of monetary policy. The Board of the Central Bank discusses and sets the level of this interest rate at its Monetary Policy Meetings, and communicates a trajectory that achieves the inflation goal over two-year terms. In practice, the Monetary Policy Rate determines the level of the daily interbank lending rate, and is implemented through open market operations.

Why Is Inflation Targeting Important?

To fulfill the objective of price stability, the Bank has set as its explicit target that the forecasted inflation remain at 3% over 2-year periods. Low and stable inflation contributes in several ways to greater economic growth. Above all, because this reduces uncertainty and therefore encourages investment and consumption, thus enabling more efficient resource allocation. In addition, keeping inflation low and stable benefits the poor, since they struggle the most in protecting themselves from increases in inflation.

What Is a Floating Exchange Rate?

The Bank applies a floating exchange rate regime, in which the exchange rate is determined by the market, according to the supply and demand for currencies, which enables the implementation of an independent monetary policy. The main advantages of a floating exchange rate regime are to facilitate the adjustment of the economy to real shocks, to prevent steep misalignments in the exchange rate (excessive rises or falls), to avoid a more costly adjustment in terms of product variability and, in principle, to reduce speculative capital movements.

Latest news and publications

 
/ Press/ Notice

Encuesta de Expectativas Económicas agosto 2020

11 August 2020

See all
/ Regulations/ Board Agreements

2331E-01-200807 - Dispone flexibilización excepcional y transitoria de la normativa que rige la Cámara de Compensación de Cheques y otros Documentos en Moneda Nacional y en Dólares

10 August 2020

See all
/ Press/ Notice

Programa operaciones especiales, semana 10 al 14 de agosto de 2020

07 August 2020

See all
/ Publications/ Statistics

Boletín Estadístico 7 de agosto 2020

07 August 2020

See all
/ Press/ Notice

Indicadores de Coyuntura Semanal al 7 de agosto de 2020

07 August 2020

See all
/ Publications/ Statistics

Informe Mensual de Estadísticas Monetarias y Financieras julio 2020

07 August 2020

See all
/ Publications/ Research

Informe de Percepciones de Negocios mayo 2020

05 August 2020

See all