Rosanna Costa: Chile's June 2024 Monetary Policy Report

Presentation by Ms Rosanna Costa, Governor of the Central Bank of Chile, before the Finance Commission of the Honourable Senate of the Republic, Santiago de Chile, 19 June 2024.

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

Introduction

Mr. President of the Finance Commission of the Senate, senators members of the Commission, ladies, gentlemen,

As usual, I would like to begin by thanking the Commission for periodically inviting the Central Bank of Chile (BCCh) to present its views on recent macroeconomic developments, as well as the outlook and implications for monetary policy. This view is presented in detail in the June 2024 Monetary Policy Report (IPoM) that we published this morning. This background is also the rationale behind the decision taken by the Board at yesterday's Monetary Policy Meeting.

We present this Report in a context in which the Chilean economy has evolved in line with forecasts in the March IPoM. This means that activity has been returning to a trend-consistent growth path, while domestic demand has performed somewhat better than expected, particularly in consumption. Inflation stands now at around 3.5% annually and its two-year expectations remain at 3%.

International developments continue to be dominated by the adjustment of expectations for monetary policy in the United States. World growth projections have had minor modifications, although it should be kept in mind that several economies have been performing somewhat better than expected.

Going forward, our country's inflation is expected to see a significant rebound and to converge to the target in the first half of 2026. This is influenced by the impact of the supply shock associated with the increase in electricity prices, which we take from official information provided by the National Energy Commission (CNE) related to the stabilization law approved last April. The greater impulse of domestic demand also plays a role, based on data from the beginning of the year and the higher price of copper.

In terms of activity, the contractionary effect of energy costs on real household income is counterbalanced by the greater momentum of domestic spending, which is expected to be accompanied by an improvement in its fundamentals, including a higher copper price projection compared to the previous IPoM. The value of this metal has risen sharply in recent months and our projection scenario assumes that more than half of said increase will be permanent.