Mario Marcel: Chile's December 2020 Monetary Policy 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, 9 December 2020.

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

Central bank speech  | 
09 December 2020
  1. Introduction

Mr President of the Senate's Finance Commission, Senator Jorge Pizarro, Senators members of this Commission; ladies and gentlemen,

I am grateful for your invitation to present the vision of the Board of the Central Bank of Chile (CBC) on recent macroeconomic developments, their prospects, and implications for monetary policy. This vision is contained in detail in the December 2020 Monetary Policy Report, published this morning. It also provides the background for the Board's decision at last Monday's Monetary Policy Meeting.

As has been seen since the start of this year, the local and international economic scenario continues to be shaped by the evolution of the Covid-19 pandemic, the measures that have been adopted to control it, and how these have affected the mobility of people and the functioning of the economy. In our country, economic activity has recovered part of the steep drop it suffered between March and May of this year. This has been accompanied by a drop in the number of cases-which has resulted in fewer mobility constraints than in mid-year-, individuals and businesses adjusting to a new form of operation because of the pandemic, and the boost provided by monetary and fiscal policy, along with other support measures for households.

However, this recovery process has been slower than we expected a few months ago. In particular, because mobility has not increased as quickly as we had hoped and the social distancing, both compulsory and voluntary, has had more long-lasting effects on some areas of the economy, such as construction and services.

The withdrawal of pension savings has triggered temporary increases in consumption, especially of imported goods, which have had a positive impact on sectors such as retail but have also put pressure on the prices of the most demanded products. In fact, inflation data for September and October showed significant upward surprises, mostly concentrated in the categories of durable consumer products, such as home equipment and electronics. The significant depletion, and in some cases exhaustion, of inventories of these products has contributed to this result.

Investment, beyond the reactivation of public and private projects, is being affected by the restrictions on mobility that have taken a toll on construction, the financial situation of companies, and the persistent uncertainty, so it is lagging further behind than consumption. The labor market, meanwhile, has shown some recovery, with an increase in employment compared to mid-year, but mostly concentrated in non-salaried jobs.