Private estimates fell short in Chile on Thursday when the Central Bank monetary policy desk announced an increase in the base rate of 125 points, to 8,25%, the highest since September 2008 in an effort to contain the strong sustained inflation. According to the bank's chair, Rosanna Costa the monetary policy desk decision was unanimous.
A poll among financial operators in Santiago had anticipated a 100 basis point hike, to 8%.
The recent evolution of inflation and its short-term outlook exceed the forecast in the March Monetary Policy Report. This situation intensifies the risks of the inflation scenario, so the Board has determined to raise the MPR to around the upper bound of the policy rate corridor of the last MP Report. The next Monetary Policy Report will feature a new evaluation of the monetary policy trajectory, said the release from the bank.
It added that world inflation has continued to rise, and central banks have intensified the withdrawal of their monetary stimuli. This has taken place in a scenario of still high commodity and food prices and lockdowns in China have put additional pressures on the recovery of global supply chains. The global growth outlook for this year has been adjusted downwards, approaching the values forecast in the March Monetary Policy Report. This, amid persistent uncertainty over the Russian invasion of Ukraine and signs of concern over activity in China.
The bank explained that movements of global financial markets have been driven mainly by risks associated with the speed at which the main central banks would withdraw their monetary stimulus measures, especially the United States Federal Reserve. In this context, since the last Meeting, long-term interest rates rose in several economies, stock markets dropped and the dollar appreciated at the global level, all in an environment of higher financial volatility.
The Chilean domestic financial market has been partially affected by these developments to the extent that during April the peso/dollar parity depreciated significantly, and long-term interest rates (BTP-10) increased. In turn, the IPSA stock exchange index declined while the sovereign risk premium (CDS) rose.
”In the credit market, lending performance continues to show moderate dynamism in the different portfolios. This outlook is consistent with the higher cost of credit, tighter access conditions and a more cautious attitude on the part of borrowers, as reflected in the qualitative information compiled in the May Business Perceptions Report (IPN).
Finally, March inflation was significantly higher than assumed in the last Monetary Policy Report, pushing the annual CPI variation to 9.4% (7.6% for core CPI, without volatiles). Worth noting was the rise in the prices of foods—core and volatile—, fuels, and some other specific items. Domestic inflationary pressures have been strengthened by the hikes in international energy and food prices, the exchange rate depreciation, and ongoing problems affecting global supply. Inflation expectations derived from the surveys—EES and FTS—remain above 3% in the two-year horizon”.