José De Gregorio: Monetary Policy Report
Speech by Mr José De Gregorio, Governor of the Central Bank of Chile, at the presentation
of the Monetary Policy Report before the Finance Commission of the Honorable Senate of
the Republic of Chile, Santiago, 13 May 2009.
* * *
Introduction
Ms President of the Finance Commission, Senator Evelyn Matthei, senators integrating this
Commission and senators present,
On behalf of the Board of the Central Bank of Chile I am grateful for your invitation to share
our vision of recent macroeconomic developments, prospects and implications for monetary
policy that are the substance of the Monetary Policy Report (the Report) of May 2009.
When we began presenting our Report to this Commission in January this year, we said we
were in the midst of the worst economic and financial world crisis in several decades. Today,
four months on, we can say the situation has worsened.
The world at large is in a severe recession. This year the level of global output will fall for the
first time in over sixty years, and world trade will see an unprecedented decline. Since the
Great Depression we hadn't seen a world crisis of the magnitude we are going through
today. Big challenges remain open, but in the past few weeks there has been "a glimmer of
hope" that suggests that the developed economies may be stabilizing. The lessons learned
from the Great Depression and the commitment on the part of policymakers around the world
to ensure that the misery that it caused will not replicate itself this time have prevented the
current situation from causing even more severe disruptions.
One particular aspect of the current crisis has been the synchrony among different countries.
The financial earthquake that devastated developed markets last September and October
and its aftershocks that swept over the financial systems of every economy, over output
prospects in the world, over income and wealth, just to name a few, propagated to
expectations which deteriorated across the entire world.
The Chilean economy has not been absent to this phenomenon. As we said in the very
beginning, our economy is not and cannot be immune. You can see it in the latest figures
Monetary Policy
and projections contained in this Report. The channels and mechanisms
through which the crisis is transmitted to our economy are varied, and the severe
international shock that hit us during the fourth quarter of last year has had damaging
repercussions locally, even more so than we foresaw in January.
A question that arises naturally is, why the big impact on our economy? Unfortunately, no
single answer exists and only time and the gathering of information will allow us more
certainty. For now, from observing the data we see that one of the strongest factors in the
downturn of both domestic demand and world trade, has been the global crisis of confidence,
understood as worsened expectations and increased uncertainty around the world, not
overlooking the impact of financial tightening that hit hardest in September and October of
last year.
The sudden and widespread nature of the downfall of demand across countries that are so
heterogeneous is proof of how difficult it is to differentiate and to avoid the instant impact of
such an acute crisis. The downfall made no distinction based on the economies' strengths or
weaknesses. GDP fell in nearly 90 per cent of the countries in the fourth quarter of last year
(Figure 1). However, macroeconomic policies can build a solid base from where to weather
the shock coming from abroad and create countercyclical impulses to mitigate them, thus
making room for a rapid, sustained recuperation.
A few years back, it was hard to think that a world recession this big would not translate into
major problems in our country and in developing economies in general, but it has not
happened. The effects of the crisis in Chile have been mitigated thanks to policy efforts and
to our own strengths as a country.
This crisis will bring about long discussions and analyses of its effects, and lessons will be
drawn. We can now benefit from the lessons we learned the hard way from the profound
financial and real crisis we suffered in 1982-1983. Chile has steadily built throughout the
years solid macroeconomic and financial institutions that, although they do not shield us from
world events, do permit us to adjust to external shocks at substantially lower costs than we
would have faced in the past. Therefore, as we have also said since the current crisis turned
into chaos, Chile has never been better prepared to weather a shock like the one we are now
enduring. Proof of this is the enormous countercyclical effort of macroeconomic policies
carried out in the context of a solid, stable financial system.
In fact, with respect to October of last year, and compared with the rest of the world, ours has
been one of the greatest easing efforts of monetary policy, and our monetary policy rate
(MPR) is at its historic low (Figure 2). Such an expansionary monetary policy has been
implemented within the context of a credible inflation targeting regime, which ensures its
effectiveness facing shocks of the magnitude we are seeing now.
Chile's inflation was among the highest between early 2007 and October 2008, a period that
saw commodity prices soar. Also, Chile's inflation has been one of the fastest to drop (Figure
3). This reveals something we pointed out emphatically during 2008: that the origin of our
high inflation was mainly foreign, but that it was the duty of monetary policy to control it from
propagating excessively into other prices and expectations (Figure 4). Thanks to that
determination we have been able to aggressively cut the MPR, without compromising our
commitment to price stability.
A less credible policy would be incapable of being as expansionary as it is today, because it
would not pass through to the interest rate structure or to market rates. In the past, monetary
expansion was limited by fears of financial and macroeconomic instability. With the strong
fundamentals of today's Chilean economy, such limitations don't exist.
Although nobody escaped the impact of the financial collapse of the end of last year on the
real economy, the ability of each economy to bounce back will be largely determined by its
own strengths. That is demonstrated both by recent projections by international organizations
and private agencies and by the evidence discussed in this Report. Chile should be one of
the first economies to reap the benefits of expansionary policies and take steps forward in a
faster, sustained recovery. Therefore, as soon as in the second half of this year our economy
should be back to trend growth rates.
Transmission channels of the international crisis to the domestic economy
Let me now review the various channels whereby we have been affected by the international
crisis, which provides the necessary context to explain our policy decisions and the
projections on our economy contained in this Report.
The complex moment for the world economy has prompted, on one hand, a sharp fall in
world demand for our exports; growth projections for Chile's trading partners for the two-year
period 2009-2010 went from an average of 1.6 percent in January to 0.3 percent in the
baseline scenario in this Report, affecting the prices of the products we sell to the world.
The terms of trade, as we had already anticipated in January, have seen a steep fall, hurting
national disposable income. Nevertheless, the drop in commodity prices has had an
immediate positive effect on household income, particularly through oil and other imported
goods.
Although some specific sectors are having difficulties placing their products abroad, the
volume of Chilean exports, largely linked to natural resources, has not declined significantly.
This reveals that price adjustments have permitted them to continue to be present in markets
around the world. This is quite different from the realities of some manufactured goods
exporters that have experienced sharp, severe and widespread downfalls. The figures show
that the impact in terms of economic deceleration during the fourth quarter of last year was
much more severe in those economies whose export basket is tilted towards durables
(Figure 5).
Another transmission channel of the global crisis has been the effect on domestic financial
markets of the deteriorated financial conditions in developed economies together with the
increase in the global risk perception. Despite reduced stress in the past several months, the
world financial environment continues to cause concern. Still, conditions facing Chilean
banks and firms to access external credit sources are more favorable than for other
emerging economies, no sudden stop has occurred in external inflows, while the local bond
market has taken a significant impulse.
Chile's foreign financing needs have been met easily, and the reduction in the current
account deficit has lessened future requirements. Absence of tensions in this setting is
reflected in the Chilean sovereign risk trend, in our country's credit rating upgrade applied a
few months back, and in the foreign currency interest rates in the domestic market.
In addition, the change in risk perception and global financial conditions triggered a
tightening of domestic lending standards, which has been offset by measures of monetary
policy and liquidity provision. The interest rate cut applied by the banks has been evident,
reflecting in consumer and commercial loan rates now hundreds of basis points below their
peak in late 2008. Mortgage rates, meanwhile, have also declined, although somewhat less
(Figure 6).
Accordingly, market rates are higher than they would be in normal conditions given the
monetary impulse, because they are also affected by the risk assessment of operations and,
in the current juncture, a higher premium is being tagged on sectors that are more exposed
to the economic downturn. In addition, lending has slowed and, although somewhat less
restrictive marginally, March's Survey on Economic Conditions, plus additional information,
reveal that high requisites are in force for bank lending, and consumer demand has fallen.
The macroeconomic scenario
A corollary to the change of global macroeconomic scenario has been the significant
deterioration of expectations combined with increased uncertainty about the future unfolding
of the world economy. Income prospects for firms and households have become more
uncertain, while problems in international financial markets could have been resolved faster
to clear the picture on the true solvency of various financial institutions at the global level.
The aforesaid factors have naturally increased the risks associated to economic activities
and to decision-making processes, contributing to the sharp reduction in expenditure by the
end of 2008 and to the revision of consumption, investment and production decisions around
the globe. This factor may be the culprit of a large share of the fall in the level of domestic
demand in Chile, much larger than the fall in GDP, which cannot be fully explained by
movements in the usual macroeconomic variables. This is particularly visible in the
components that are most sensitive to the cycle and to expectations, such as durable
consumption, inventories, and gross fixed capital formation in machinery and equipment. The
evolution of indicators of consumers and entrepreneurs' expectations - IPEC and IMCE -
despite a recent small rebound, shows levels below those seen in the few months leading to
the crisis (Figure 7).
The fall in domestic demand also responds, albeit to a lesser extent, to a cyclical adjustment
component. Up to the third quarter of 2008, domestic demand grew at annual rates above 10
percent during several quarters (Figure 8), driven primarily by investment and durable
consumption. Output, meanwhile, was showing clearly lower growth rates, because a
significant portion of the demand was deviating to imported goods. The worsening of the
financial crisis in the developed markets only sped up and deepened this cyclical adjustment.
The drop in domestic demand has been most visible in a fall in imports, limiting the extension
of the current account deficit forecast for this year.
Accordingly, the impulse of the world economy and the response of domestic demand to the
worsened expectations and to the prevailing uncertainty will be negative this year, although
partly offset by expansionary monetary and fiscal policies. Because of the connection
between our economy's prospects and the external environment, whatever judgment is made
regarding the future pace of global recovery is crucial in the evaluation of our economy and
its relevant external environment.
There are signs in developed market and commodity prices - particularly copper - that
suggest that the world economic downturn may be coming to an end. Still, growth projects for
the main industrialized areas for the remaining of 2009 and throughout 2010 are bleak. This
is partly mitigated by growth forecasts in emerging economies, which are stronger than in
developed countries, thanks to the normalization of financial flows, the higher levels of
investors' appetite for risk and increased demand for commodities. Emerging Asia should
have a quick rebound, which is already showing up in some figures of foreign trade,
manufacturing output and confidence indicators in said area. All this will push global activity
to an expansion of 2.1 percent in 2010, after dropping 1.2 percent in 2009 (Table 1).
As the aforesaid world growth scenario settles, the degrees of uncertainty should gradually
dissipate, which combined with monetary and fiscal expansions, should allow for a steady
increase in Chile's domestic demand and output. Thus, although in the first quarter of this
year the level of economic activity dropped more mildly than in the end of 2008, its recovery
should begin to be more evident during the current quarter. The lagged effect of diminished
activity, consumption and investment of late 2008 anticipate that the economy will experience
negative annual variation rates at least during this whole quarter, even though compared with
the previous quarter is already picking up.
Over the course of the second half of 2009 and throughout the entire 2010, annual GDP
growth will resume positive values, closer to trend, in line with the strong monetary and fiscal
impulse and with the Chilean economy's sound fundamentals. Thus, for 2009 at large,
annual GDP growth will be within the range between -0.75 and +0.25 percent, while domestic
demand will drop 4.7 percent year-on-year. Consistently, the baseline scenario assumes that
the current account deficit will amount to 1.8 percent of GDP in the year, lower than predicted
in January (Table 2).
The labor market is already feeling the deterioration of the macroeconomic environment.
Employment, after the usual seasonal adjustment, has shown a decline in the past few
months and the rate of unemployment has begun to rise. Taking into account the typical
relationship between the output gap and employment, it is likely that the labor market will
continue to deteriorate in the months to come, with higher unemployment, despite early signs
of recovery in the economy. Still, the implementation of the National Agreement for
Employment recently announced by the Government could mitigate part of the rise in
unemployment.
The increase in output gaps has affected inflationary pressures and perspectives in the large
majority of countries. A big number of economies, Chile included, have seen a rapid decline
in inflation since the final months of last year. This obeys to a large extent to commodity
prices falling, particularly oil and its derivatives. Thus, annual CPI variation went from its 9.9
percent peak of October 2008 to 4.5 percent in April. Most measures of inflation expectations
show a decline in recent months, particularly for the short term (Figure 9).
The baseline scenario of this Report assumes that year-on-year inflation will continue on a
downward path in the coming months with large swings between the end of this year and the
beginning of 2010. This, because of the changes in the basis of comparison that include high
figures from May through October 2008 and negative ones that accumulated from last
November to February (Figure 10). Therefore, in the baseline scenario, annual CPI inflation
will be negative from the end of the third quarter to the beginning of the fourth, to close the
year 2009 at 0.6 percent. Then it should pick up gradually, to reach 3 percent at the end of
the policy horizon, this time the second quarter of 2011. The rate of annual variation of core
indicators has also dropped, a trend that will prevail until the first half of 2010, when they will
start growing steadily to also hit 3 percent by the end of the policy horizon (Table 3).
The path projected for inflation rests on a number of assumptions. On one hand, import costs
will not be a source of additional inflationary pressures. Commodity prices will post small
increases in the next two years, in line with the slow recovery foreseen for the world
economy. In particular, based on the prices implicit in futures contracts over the ten days
prior to the statistical closure of this Report, the average price for oil will be 52 and 64 U.S.
dollars per barrel this year and next, respectively (Table 4). The peso has appreciated since
the statistical closure of the January Report. As a methodological assumption, the long-term
real exchange rate (RER) is assumed to be close to the levels it showed in the two weeks
prior to the statistical closure of this Report (Figure 11).
On the other hand, unit labor costs' annual variation has risen in the past few quarters, due
to sharp changes in productivity measures based on the path of output and employment. The
increase in nominal wages, after peaking around 8 percent annually, began to decline. These
dynamics suggest that the labor market is behaving in line with usual indexation clauses and
the stage of the cycle. The baseline scenario assumes that these wages will be revised to
accommodate the decline in inflation, the wider output gaps and movements in the
employment rate.
One crucial aspect in the evolution of Chile's business cycle and prospects of higher growth
in the rest of this year and during 2010 is stimulus of monetary conditions. The reductions in
the monetary policy interest rate have transmitted to lending rates quite rapidly, reflecting
more favorable financial conditions for both firms and households. In addition, the interest
rate structure of CBC instruments shows, by and large, the possibility of a gradual closing of
gaps and inflation approaching the target.
In the highly uncertain times at the end of 2008 and beginning of 2009, the CBC's and fiscal
fixed-income bonds played the role of a haven for investors and individuals, pushing down
the related interest rates. This marks a difference with other economies with weak financial
situations, and even with ourselves in the past, when increases in global uncertainty used to
coincide with an increase in these rates. We must thank the soundness of our economy and
the solvency of our fiscal accounts. This process probably intensified with the aggressive
cuts to the MPR early this year, and has tended to reverse with the reduction in uncertainty in
international financial markets. Furthermore, the proper functioning of our capital markets
has provided good alternatives for corporate financing (Figure 12).
Report's
A working assumption that is central to this macroeconomic scenario is the MPR
path defined to be consistent with attaining a 3 percent annual inflation over the usual policy
horizon around two years. This time the baseline scenario assumes that, in the short term,
the MPR will follow the path similar to the one implicit in the financial asset prices in effect on
8 May 2009, after the latest cut agreed on in last week's monetary policy meeting. However,
towards the end of the projection horizon, the MPR path runs below the aforesaid assumed
trend (Figure 13).
As usual, the baseline scenario described above reflects the events that are believed to be
most likely to occur with the information available at the closing of this Report. Logically,
different events will lead to different macroeconomic conditions and, therefore, an MPR path
that will also differ. Currently, the level of uncertainty is definitely higher than normal and,
after assessing the probability of alternative scenarios, the Board considers that the balance
of risks for growth is biased downward, and is unbiased for inflation. The main risks are
associated, once again, to the complex global economic outlook.
In the past few weeks, some signs of stabilization of the crisis in developed economies have
begun to show up, with a marginal recovery of manufacturing output, exports and confidence
indicators in different economies, particularly in Asia. It is possible that these signs may be
just another stage in the volatility shown by the markets in the past several quarters, and new
stressful situations may arise that could worsen the already precarious situation of the world
economy. Meanwhile, if the rebound of stock markets and the reduced risk aversion are solid
indications that uncertainty is fading out, a more widespread recovery of global output and
demand may be seen in the short run at the global level.
The materialization of some of these risks could have important implications on the domestic
economy, mainly consumers and entrepreneurs' expectations possibly taking longer than
predicted to improve, or the economy quickly recovering from its current state.
Aside from the risks inherent to the short-run performance of the economy, there are doubts
regarding the medium-term effectiveness of the measures adopted to try to resolve the
international crisis, the potential protectionist actions by governments and a possible
deflation in developed economies that may delay decisions to consume and invest. Global
imbalances are still present, and there is also the risk of high global inflationary pressures in
the medium term if the large fiscal and monetary stimulus packages in the developed world
are not properly managed.
Domestically, we cannot rule out that, facing a relief in global uncertainty, the magnitude of
the macroeconomic impulse under way, deriving from the combination of clearly
expansionary fiscal and monetary policies, translates into a strong push to domestic output
and demand. Nor can we rule out that the measures taken by the government to smoothen
the functioning of credit markets, to stimulate investment and to cushion the impact on the
labor market of the cyclical situation, facilitate a faster response of the economy to said
macroeconomic stimulus and a rapid recovery of expectations.
Final considerations
I would like to end this presentation with some reflections about the economic situation we
are going through and the prospects for our economy. The worsening of expectations and
the higher uncertainty at the global level are grounded on the change in macroeconomic
conditions. However, in our country this is clearly contained, thanks to the soundness of our
economy, with strong macroeconomic fundamentals, and capable of implementing and
sustaining policies that mitigate the impact from abroad.
Our financial system, unlike that of other countries, has suffered no dislocations
compromising its solvency. Inflation has rapidly been reduced, and medium-term
expectations are consistent with the target. The Board has reduced the MPR aggressively
and does not rule out that further cuts may be necessary. Accordingly, it reaffirms its
commitment to conduct monetary policy so that projected inflation stands at 3 percent over
the policy horizon.
The worst part of the financial turbulence seems to be fading into the past, but its effects on
output and employment will remain with us for a while. Monetary policy will continue to aim at
reducing these effects. It has proven to have significant degrees of flexibility, always
consistent with reaching the inflation target. While in quiet times a gradualist behavior of
monetary policy can be expected, when confronted to extreme conditions like we see today,
proactive action is called for, and that is what we have been doing. We know this world crisis
cannot last forever, and we are confident in the healthy fundamentals of our economy and in
the expansionary capacity of the unprecedented and significant macroeconomic stimulus
packages that are now under way.
Thank you very much.
Figure 1
Countries experiencing drops in real GDP in the fourth quarter of 2008 (*)
(percentage of sample)
100 100
90 90
80 80
70 70
60 60
50 50
40 40
30 30
20 20
10 10
0 0
71 74 77 80 83 86 89 92 95 98 01 04 07
(*) Using the annualized quarterly GDP for a sample of 29 developed or emerging economies.
Source: Central Bank of Chile.
Figure 2
Monetary Policy Rate (MPR)
Change in MPR MPR level
(basis points) (percent)
Japan
Chile
U.S.
Turkey
Canada
N. Zealand
Switzerland
U.K.
Israel
India
Hong Kong
Norway
U.K.
Colombia
Sweden
Australia
Eurozone
Sweden
Chile
Israel
Czech Rep.
South Africa
Norway
South Korea
South Korea
Eurozone
Malaysia
Hong Kong
N. Zealand
Brazil
Australia
Canada
Poland
Switzerland
Peru
Iceland
Philippines
Poland
India
Mexico
China
Peru
Colombia
China
Mexico
Czech Rep.
Indonesia
Indonesia
South Africa
U.S.
Hungary
Philippines
Turkey
Malaysia
Japan Brazil
Argentina
Hungary
Russia
Russia
Iceland
Argentina
0 2 4 6 8 10 12 14
-800 -600 -400 -200 0 200
At 8 May 2009
From 4 Sep. 2008 to 8 May 2009
Source: Bloomberg.
BIS Review 65/2009
Figure 3
Accumulated CPI variation
(percent)
South Africa Mexico
Colombia
Turkey
South Africa
Chile
Indonesia Brazil
Colombia Poland
Hungary South Korea
Peru Turkey
Hungary
Brazil
Hong Kong
Czech Rep.
Malaysia Peru
Israel Czech Rep.
Mexico Sweden
South Korea Indonesia
Norway U.K.
Norway
U.S.
Thailand Canada
Poland Thailand
U.K. Eurozone
Sweden Israel
Eurozone Switzerland
U.S.
Switzerland
Canada Japan
Hong Kong Malaysia
Japan Chile
0 3 6 9 12 15 18 -3 -2 -1 0 1 2 3 4
January 2007 - October 2008 October 2008 - March/April 2009 (*)
(*) In April for Brazil, Chile, Colombia, Indonesia, Mexico, Peru, South Korea, Switzerland, Thailand and Turkey.
Sources: Statistics Bureaus of each country and Bloomberg.
Figure 4
Incidences on annual CPI inflation (*)
(percentage points)
12 12
10 10
8 8
6 6
4 4
2 2
0 0
-2 -2
-4 -4
01 02 03 04 05 06 07 08 09
October 2008 - March/April 2009 (*)
Public utilities (7.96%) Fresh fruits and vegetables (2.92%)
Fuels (6.08%) Other (61.95%)
Total
Foods minus fresh fruits and vegetables (21.09%)
(*) In parentheses, weights in the CPI basket of December 2008. Before that, built using weights in the
December 1998 basket.
Sources: Central Bank of Chile and National Bureau of Statistics (INE).
Figure 5
Share of durable goods in total exports and contribution of exports to GDP
quarterly growth in the fourth quarter of 2008
60
HK
SIN
50
COR
HUN
exports)
40
TAI
FIN ALE
total
exports
RCH
30
of
HOL
20
Durable
CAN
BRL
BEL NZL
10
AUS
(percentage
ARG NOR
R2 = 0.52
CHL COL
-35 -30 -25 -20 -15 -10 -5 0 5 10
Exports
(contribution to GDP, annualized quarterly change, percent)
Source: Central Bank of Chile.
Figure 6
Lending interest rates (1)
(percent)
16 38
14 35
12 32
10 29
8 26
6 23
4 20
2 17
02 03 04 05 06 07 08 09
Consumer (2)
Commercial (2)
Housing (3)
(1) Weighted average rates.
(2) Nominal rates.
(3) Rates in UF.
Source: Central Bank of Chile.
Figure 7
Consumers and entrepreneurs' perception indexes
90 140
70 70
70 120
60 60
50 100
50 50
30 80
40 40
10 60
30 30
86 90 94 98 02 06
04 05 06 07 08 09
IPEC (1) U. de Chile (2) Total IMCE (3) Minus mining (3)(4)
(1) Values above (below) 50 points indicate optimism (pessimism). Before January 2003, the index was published quarterly.
Since then it is published on a monthly basis.
(2) Index, March 2001 = 100.
(3) Values above (below) 50 points indicate positive (negative) expectations.
(4) Weighted average of three sector confidence indicators: manufacturing Industry, retail and construction.
Sources: Adimark, Universidad de Chile and ICARE/Universidad Adolfo Ibáñez.
Figure 8
Contribution to annual GDP growth (1)
(real annual change; percentage points)
16 16
12 12
8 8
4 4
0 0
-4 -4
-8 -8
-12 -12
97 98 99 00 01 02 03 04 05 06 07 08 09
Net exports (2) Private consumption Gov't consumption
Change in inventories GFCF GDP
(1) GDP of first quarter of 2009 corresponds to averaged published Imacecs.
(2) Exports of goods and services minus imports of goods and services.
Source: Central Bank of Chile.
Table 1
World growth (*)
(annual change, percent)
Average Average 2007 2008 (e) 2009 (f) 2010 (f)
90-99 00-05
Report Report Report Report
Jan.09 May 09 Jan.09 May 09
 
World 2.9 3.8 5.2 3.2 1.2 -1.2 3.3 2.1
World at market nominal
exchange rate 2.4 2.9 3.8 2.2 -0.3  -2.3 2.3  1.4
 
United States 3.1 2.5 2.0 1.1 -1.8 -3.0 2.0 0.5
 
Euro zone 2.2 1.9 2.7 0.9 -1.9 -3.5 1.0 0.4
 
Japan 1.5 1.6 2.4 -0.6 -2.4 -7.2 1.2 0.9
China 10.0 9.4 13.0 9.0 7.5  6.5 8.0  7.5
 
Rest of Asia 5.5 4.8 5.9 3.0 1.2 -1.9 3.2 1.4
 
Latin America 2.7 3.0 5.7 4.2 1.2 -2.0 2.7 1.5
 
Commodity exporters 2.7 3.1 3.2 1.0 0.2 -1.7 1.8 0.9
Trading partners 3.0 3.1 5.0 3.0 0.4  -1.5 2.7  2.0
(*) Regional growth rates weighted by share in world GDP at PPP as published by the IMF's World Economic Outlook (WEO,
April 2009).
(e) Estimate; (f) Projection.
Source: Central Bank of Chile based on a sample of investment banks, Consensus Forecasts and International Monetary Fund.
Table 2
Economic growth and current account
(annual change, percent)
2007 2008 2009 (f)
GDP 4.7 3.2 -0.75 to 0.25
National income 7.1 3.8 -2.8
Domestic demand 7.8 7.4 -4.7
Gross fixed capital formation 12.0 19.5 -14.3
Total consumption 7.1 4.2 0.2
Goods and services exports 7.6 3.1 -1.7
Goods and services imports 14.9 12.9 -10.6
Current account (% of GDP) 4.4 -2.0 -1.8
(f) Projection.
Source: Central Bank of Chile.
Figure 9
Effective inflation and inflationary outlook
Inflation indicators EES: Inflation expectations
(annual change, percent) (annual change, percent)
10 10 7 7
8
8
6 6
6 6
5 5
4 4
4 4
2 2
3 3
0 0
2 2
-2 -2
02 03 04 05 06 07 08 09
01 02 03 04 05 06 07 08 09
CPI
CPIX Two years ahead One year ahead
CPIX1
CPI minus foods and energy
Sources: Central Bank of Chile and National Statistics Bureau (INE).
Figure 10
CPI monthly inflation
(percent)
2.0 2.0
1.5 1.5
1.0 1.0
0.5 0.5
0.0 0.0
-0.5 -0.5
-1.0 -1.0
-1.5 -1.5
Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.
2001-2006 average 2007 2008 2009
Source: National Statistics Bureau (INE).
Table 3
Inflation
(annual change, percent)
2006 2007 2008 2009 (f) 2010 (f) 2011 (f)
Average CPI inflation 3.4 4.4 8.7 2.3 1.5
December CPI inflation 2.6 7.8 7.1 0.6 2.3
CPI inflation two years ahead (*) 3.0
Average CPIX inflation 3.2 4.0 8.4 3.7 1.1
December CPIX inflation 2.7 6.3 8.7 0.5 2.2
CPIX inflation two years ahead (*) 2.9
Average CPIX1 inflation 2.5 4.1 7.8 3.8 1.0
December CPIX1 inflation 2.4 6.3 7.9 1.0 2.2
CPIX1 inflation two years ahead (*) 3.0
(f) Projection.
(*) Inflation projected for the second quarter of 2011.
Source: Central Bank of Chile.
Table 4
Main assumptions of the international baseline scenario
(yearly average)
2008 2009 (f) 2010 (f)
Sep.08 Nov.08 Jan.09 May 09 Sep.08 Nov.08 Jan.09 May 09
WTI oil price 100 116 70 50 52 115 80 60 64
(US$/barrel)
LME copper price 316 310 165 150 180 300 190 160 185
(US$cent/lb)
Terms of trade -15.0 -7.2 -18.2 -19.1 -13.5 -4.3 -2.5 -2.0 -3.8
(annual change, %)
External prices in US$ 12.0 3.3 0.5 -0.8 -5.7 2.8 4.8 5.5 7.0
(annual change, %)
(f) Projection.
Source: Central Bank of Chile.
Figure 11
Real exchange rate
(index,1986=100)
120 120
110
110
100
100
90 90
80 80
70 70
88 90 92 94 96 98 00 02 04 06 08
RER 1989-2008 average 1994-2008 average
Source: Central Bank of Chile.
Figure 12
Interest rates on CBC instruments and VIX
(monthly averages, percent)
8 70
7 60
6 50
5 40
4 30
3 20
2 10
1 0
04 05 06 07 08 09
BCP-10
VIX
BCU-10
Sources: Central Bank of Chile and Bloomberg.
Figure 13
Monetary policy rate and forward curve
(percent)
10 10
9 9
8 8
7 7
6 6
5
5
4 4
3 3
2 2
1 1
0 0
07 Jul. 08 Jul. 09 Jul. 10 Jul. 11
MPR September 2008 Report
January 2009 Report May 2009 Report (*)
(*) Estimated using financial asset prices at 8 May 2009.
Source: Central Bank of Chile.