Mario Marcel: The Monetary Policy Report and the Financial Stability Report

Presentation by Mr Mario Marcel, Governor of the Central Bank of Chile, before the Finance Commission of the Honorable Senate of the Republic, Santiago de Chile, 5 June 2017.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Introduction

Mr. President of the Senate's Finance Committee, senator Carlos Montes, senators members of this Commission, ladies, gentlemen.

Thank you for your invitation to present the vision of the Board of the Central Bank of Chile on the recent macroeconomic and financial developments, projections and implications for monetary and financial policy. This vision is detailed in our June Monetary Policy Report and our Financial Stability Report for the first half of this year.

In the past few months, the macroeconomic scenario has evolved in line with forecasts depicted in our March Monetary Policy Report. On one hand, inflation has brought no surprises, consistently with an exchange rate that has changed little since mid-2016 and gradually expanding capacity gaps. First-quarter activity growth was virtually flat in annual terms, largely affected by downtime in Escondida mining company, in a context of still very weak performance of sectors linked to construction investment.

In contrast, consumption shows a more stable outlook, driven by significant growth in demand for durable goods, which has offset the poorer performance of the other components. The external scenario, beyond recent volatilities, continues to signal higher growth in the developed world, with favorable financial conditions for emerging markets and commodity prices without major changes, after having begun a recovering in late 2016.

Thus, although important external and domestic sources of uncertainty remain, prospects for this year and next are in line with forecasts. Accordingly, the projections in the baseline scenario that I will be sharing with you in a moment, assume that monetary policy will remain expansionary throughout the projection horizon, so that inflation will fluctuate around 3% during much of the period, and activity will recover higher rates of expansion, especially towards the second half of 2017 and into 2018.

Let me now present the details of our vision about the macroeconomic scenario and estimates contained in our Monetary Policy Report.