Monetary Policy Report (IPoM)

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Monetary Policy Report September 2024

Informe de Política monetaria

As had been anticipated, the strong dynamism of activity early in the year was reduced, which was partly associated with the reversal of some transitory elements. However, this moderation was somewhat greater than was foreseen in the previous IPoM, influenced by the deterioration of private consumption. Headline inflation rose to 4.4% annually in July, largely due to the anticipated effect of higher electricity prices, while core inflation (without volatile items) remains close to 3.5% annually. Inflation expectations have risen in the short term but remain anchored to the two-year target of 3%. For this year, the growth projection range is reduced in its upper bound and the expected increase in demand is corrected downwards. For 2025 and 2026, the economy is still considered to grow around its trend. This is consistent with the performance of its main fundamentals, including the labor market on the consumption side and the boost of large-scale mining projects on the investment side. In any case, the recovery in spending will be somewhat slower tan expected in June. In the short term, volatile elements push up the overall inflation projection. However, the reduction in inflation will be faster because of lower demand pressures. The impulse that the Chilean economy will receive from abroad is similar to what was considered in June, although global financial conditions will be somewhat better thanks to the change in the expected trajectory of the interest rate in the United States. The combined information available suggests modest changes in the outlook for activity, although spending shows greater weakness. This, together with inflation expectations in line with the 3% target, reduces the risks of further inflationary persistence in the medium term as a result of the cost shock. The Board estimates that, if the assumptions of the central scenario of this Report materialize, the reduction of the monetary policy rate (MPR) towards its neutral level will be somewhat faster than expected in June. This will occur at a pace that will factor in the evolution of the macroeconomic scenario and its implications for the path of inflation.

Monetary Policy Report September 2024

What does this MP Report tell us?

The Chilean economy has continued to grow this year, albeit at a more moderate pace in the second quarter.

The Chilean economy has continued to grow this year, albeit at a more moderate pace in the second quarter.

The rise in inflation has been mainly driven by higher prices of energy and foodstuffs.

The rise in inflation has been mainly driven by higher prices of energy and foodstuffs.

The increase in prices in general (inflation) will be lower from the second half of 2025 when it approaches 3%, target that will be reached in 2026.

The increase in prices in general (inflation) will be lower from the second half of 2025 when it approaches 3%, target that will be reached in 2026.

The Central Bank of Chile will further reduce the interest rate, thus helping to boost the economy.

The Central Bank of Chile will further reduce the interest rate, thus helping to boost the economy.

The Chilean economy has continued to grow this year, albeit at a more moderate pace in the second quarter.

The Chilean economy has continued to grow this year, albeit at a more moderate pace in the second quarter.

  • As had been anticipated, economic activity lost momentum in the second quarter, after greater dynamism at the beginning of the year.
  • This moderation, somewhat more pronounced than expected in the June IPoM, was marked by a drop in household spending on non-durable goods and services.
  • Investment stabilized after a sharp fall in the second half of last year.
  • Thus, the Central Bank foresees that the Chilean economy will grow between 2.25% and 2.75% this year.
The rise in inflation has been mainly driven by higher prices of energy and foodstuffs.

The rise in inflation has been mainly driven by higher prices of energy and foodstuffs.

  • As predicted in the June IPoM, the annual CPI increased in recent months, standing at 4.4% in July.
  • This increase was mainly influenced by the rise in the prices of so-called “volatile” items, such as electric bills and fruits and vegetables.
  • Meanwhile, “core” inflation (which excludes the prices of energy and foods, among others) has remained near 3.5%.
  • Two-year inflation expectations, which reflect confidence in the Central Bank’s work, remain at the 3% target.
The increase in prices in general (inflation) will be lower from the second half of 2025 when it approaches 3%, target that will be reached in 2026.

The increase in prices in general (inflation) will be lower from the second half of 2025 when it approaches 3%, target that will be reached in 2026.

  • The year 2024 is expected to end with inflation slightly above the June forecast, ending the year at 4.5% (4.2% in the June IPoM).
  • Other factors that explain this increase are the rise in maritime freight prices globally and the depreciation of the peso of recent months.
  • However, inflation will see a more rapid decline going forward, reaching the 3% target in early 2026.
The Central Bank of Chile will further reduce the interest rate, thus helping to boost the economy.

The Central Bank of Chile will further reduce the interest rate, thus helping to boost the economy.

  • The MPR cuts have continued to be passed through to bank lending rates in line with the usual patterns.
  • The Central Bank Board reduced the Monetary Policy Rate by 25 basis points at its September meeting, bringing it to 5.5%.
  • The Central Bank Board will continue to carefully analyze the evolution of the economy and the outlook for inflation in order to continue reducing the MPR and meet the 3% inflation target 3%.
Presentations
Conferencia de Prensa IPoM Septiembre 2024
 
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