Rodrigo Vergara: The Monetary Policy Report and the Financial Stability
Report
Presentation by Mr Rodrigo Vergara, Governor of the Central Bank of Chile, before the
Finance Commission of the Honorable Senate of the Republic, Santiago de Chile, 6 June
2016.
* * *
Both the Monetary Policy Report of June 2016 and the Financial Stability Report of the first half of 2016 can be
found at http://www.bcentral.cl.
Introduction
Mr. President of the Senate's Finance Commission, Senator Andrés Zaldívar, senators
members of this Commission, ladies and gentlemen,
Thank you for your invitation to present the Central Bank of Chile's vision on the recent
macroeconomic and financial developments, prospects and implications for monetary and
financial policy making. This vision is contained in detail in our Monetary Policy Report of
June 2016 and our Financial Stability Report of the first half 2016.
Over the last few months, the economy evolved in line with estimates in our March Report.
Inflation declined to 4.2 percent annually and our new baseline projections - which I will
share with you in a moment - indicate that it will return to the tolerance range within a few
months.
On economic activity, first-quarter GDP growth outperformed our March forecast. However,
this year's outlook foresees that it will remain below potential still for some quarters.
The world economy continues to be marked by expectations about the Federal Reserve
(Fed)'s decision on the trajectory of its monetary policy normalization, and by the risks
coming from the Chinese authorities' efforts to meet the country's target growth rates. During
most of the quarter, the markets' assessment of these phenomena resulted in a loosening of
financial conditions compared with the beginning of the year. Most recently, however, these
trends have been partly reversed. Thus, our new baseline scenario assumes that our trading
partners will post similar growth rates to those of 2015, but external lending conditions will be
tighter and commodity prices will remain below their long-term levels.
In this context, we have held the monetary policy rate (MPR) at 3.5 percent annually and we
foresee that, within our forecast horizon, further increases will be necessary. Of course, this
will be contingent on incoming information about the projected inflation dynamics. Thus, if
new indicators point at higher expected inflation, monetary policy will need to be tightened,
and vice-versa. In any case, we have maintained a significantly expansionary monetary
stance, which will remain so in the scenario we believe to be the most likely.
Let me share with you the workings of our baseline scenario and the main risks we perceive,
which are depicted in the Reports I am presenting now.
Macroeconomic scenario
As I said before, in recent months both headline (CPI) and core (CPIEFE) inflation have
behaved as expected. By components of the CPIEFE, goods inflation began showing a more
moderate expansion, with y-o-y variation going from nearly 5 percent at the end of 2015 to
4.4 percent in the latest figure. This responds largely to the fact that, despite important
fluctuations, the exchange rate has not shown a comparable increase to the one between
mid- 2013 and third-quarter 2015. CPIEFE services inflation has also slowed, but is still near
5 percent annually, reflecting past-inflation indexation and the effects of the depreciation.
Plus, gaps are still narrow and the labor market - despite a somewhat faster deterioration
lately - still shows low unemployment rates and strong growth in nominal wages (figure 1).
So, in our most likely scenario, annual CPI inflation will enter the tolerance range in the third
quarter of this year and will approach 3 percent during the first half of 2017 (figure 2). This
projection uses as a working assumption that the real exchange rate (RER) will hover around
its current values throughout the projection horizon. Bear in mind that the RER has risen a
little since the cutoff date of the last Report, to near 97 (index, 1986=100) (figure 3). The
convergence of inflation is also linked to output gaps that are forecast to widen in the near
future and with the labor market adjusting further during the year, especially helping drive a
reduction - albeit moderate - of services inflation.
Regarding output, first-quarter GDP and demand growth figures exceeded March
expectations, influenced by improved figures in agriculture and, somewhat less, mining.
Overall, our growth outlook is essentially unchanged. We expect the economy to continue to
grow below potential for some quarters, due mainly to poor performance of those sectors
with closer links with investment. Anyway, it is worth noting that retail trade and personal
services have proven more resilient, reflecting a more gradual adjustment on the
consumption side.
The baseline scenario of this Report sees GDP growing between 1.25 and 2.0 percent this
year and between 2 and 3 percent in 2017. This estimate is based on the assumption that
the economy will resume near-potential growth towards the end of the projection horizon.
Finally, it uses as a working assumption that public expenditure will follow a trajectory
consistent with the fiscal rule and the Administration's announced budgetary consolidation
path.
The process of growth normalization will be slow. Of particular concern is the behavior of
investment, which the baseline scenario estimates will drop for the third year in a row.
Indeed, this year several indicators, among which the survey of the Capital Goods
Corporation, the levels of imports of capital goods and business confidence, anticipate a
further drop in investment. Moreover, the housing sector will have a limited performance after
being highly dynamic in 2015, and public investment will follow a trajectory consistent with
the objectives of fiscal consolidation. However, towards 2017 non-mining investment should
restart growing at a pace matching the recovery of the overall economy (figure 4).
About the current account, we believe that this year's deficit will be smaller than we thought
in March and will show no big changes in 2017. In particular, the trade balance outperformed
the March forecast in the first quarter, driven mainly by volume exports of goods, especially
copper, and tourism-related services. Furthermore, a slowdown in capital goods imports is
expected because of adjustments in investment. In addition, there are generally upward
revisions to non-copper export prices. Consumption, meanwhile, continues to grow at around
2 percent. Details of the domestic economy's baseline scenario are shown in table 1.
In this context, we foresee further adjustments in the labor market in the coming quarters.
Lately, annual growth in salaried employment slowed down significantly, to 0.5 percent in the
last moving quarter. The national unemployment rate has adjusted more gradually, thanks to
increased self-employment, so it is still low by historic patterns (figure 5). By regions, in the
north of the country unemployment has risen more sharply than in other areas. Firms
interviewed for May's Business Perception Report - a quarterly publication of the Bank -
reveal increased labor availability together with lower wage claims. Looking into the March
survey of the University of Chile, we also see an increase in the unemployment rate in
Greater Santiago, to 9.4 percent, confirming the weakening of the labor market.
The evolution of employment and real wages, which have slowed down in annual terms in
the last year, implies slower growth in the wage mass. This, coupled with still low household
expectations, is consistent with positive, yet moderate, growth in consumption (figure 6).
Turning to the world economy, as I said, international financial markets have been marked by
two situations. One, the US monetary policy normalization process, and two, the Chinese
policy makers' efforts to achieve their growth and financial stability objectives. Early in the
quarter the market assumed that the Fed would take things extremely gradually and that the
Chinese authorities had figured out the policy mix that would allow them to keep growth in
line with its objectives. Thus, the calm of financial markets that had begun at the close of the
last Report was prolonged. Capital flows returned to the emerging world, stock markets
recovered, interest rates dropped and so did spreads, the dollar weakened and commodity
prices improved. Nonetheless, the increasing doubts about the Chinese financial system and
the perception that the US monetary policy will soon implement its adjustments - a still
uncertain development - have tended to reverse these trajectories in recent weeks. This has
been particularly visible in the depreciation of emerging currencies (figure 7).
Consistently with the volatility we have been seeing and the risks inherent to the international
economy, our baseline scenario assumes that in the coming quarters international financial
conditions will be, on average, less favorable than they were in the past two months.
Our growth outlook for the world economy and our trading partners changes little from
March: 3.2 and 3.0 percent, respectively, for the 2016-2017 average. Still, there is a
significant revision to expected US growth: 1.9 percent in 2016 (2.3 percent in March). This
estimate inputs the low output figure of the first quarter, which has to do both with the drop in
energy investment and the weak external sector. In any case, aside from one-time data,
services and labor indicators show a recovering trend and the baseline scenario foresees the
economy resuming higher growth in 2017. It also estimates that the Chinese economy will be
able to carry on with its adjustment process without seriously compromising its growth rates.
But this process will not be free of difficulties.
The terms of trade will drop again in 2016, although not as sharply as we assumed in the last
Report, owing mainly to the evolution of non-copper export prices. Considering its trajectory
of the past few months, the baseline scenario assumes that the copper price will average
US$2.15 and US$2.25 per pound in 2016 and 2017, respectively. For oil, our forecast for the
same two years is raised to US$45 and US$52 per barrel the Brent-WTI average (table 2).
About monetary policy, the baseline scenario just described uses as a working assumption
that the MPR will follow a trajectory that is similar to the one that can be deduced from the
financial asset prices at the statistical closing of this Report (figure 8). This means that
monetary policy will advance in its normalization throughout the policy horizon, in line with
the assumed economic outlook at that horizon, only a little more slowly than we thought in
March. Under this assumption, monetary policy will continue to provide a boost to the
economy.
It is important to stress that monetary policy has kept a very expansionary stance, helping
the economy to weather the changes in macroeconomic conditions as best it can. In this way
it has succeeded in accommodating a significant depreciation of the peso and inflationary
consequences without jeopardizing our monetary policy's medium-term anchor: inflation
expectations two years out. Unlike other economies, we have been able to sustain an
expansionary monetary policy without driving inflation expectations away from the target
(figure 9).
This expansionary monetary policy is most notorious in market interest rates. On one hand,
Chile's long-term rates are low by historic standards and also in a cross-country comparison.
The same is true for lending rates, which are now below their historic averages and, in the
case of mortgage loans, even at or near record lows (figure 10).
Risk scenarios
As usual, the implementation of monetary policy will respond to incoming information about
the projected inflation dynamics. Therefore, developments pushing in either direction will
prompt the necessary adjustments in monetary policy.
In the world economy, risks are pretty much the same we identified in the March Report. Still
critical is the trajectory that the Fed will choose to follow to advance in its monetary policy
normalization process. In particular, because market expectations are still misaligned with
the most likely scenario defined by the Fed itself, especially at longer horizons. The situation
in China poses a risk because of its possible impact on world growth, and because it might
trigger new episodes of financial volatility.
Latin America also poses significant risks to Chile, both because it is a major trading partner
and investment destination, and because of its effects on the external financial conditions
facing us. Its macroeconomic challenges are compounded by complex political situations. In
Brazil, the markets took the changes in the political scene well, but there are important
adjustments pending. Argentina returned to international financial markets, but it also faces
significant challenges.
There are several other factors that could cause new or intensify ongoing episodes of
financial volatility, including the UK referendum to define whether it stays in or leaves the
European Union, and a number of electoral processes under way around the world that could
cause a shift towards protectionism. However, the consolidation of economic growth in
Europe and the United States could contribute to boost world activity.
The possibility of the oil price's upward trend continuing or steepening is another risk to the
baseline scenario, because of both its direct impact on local and world inflation, and its
implications on global growth. But there are also reasons for this price to recede to its levels
of earlier months. Actually, inventories are historically high.
At home, although inflation has diminished as expected, its high level for many quarters
already is still an important risk in the baseline scenario. In the short term, its evolution is still
closely tied to the exchange rate and therefore to the risks coming from abroad.
For activity, the risks outlined in previous quarters persist. Confidence remains pessimistic
and the Chilean economy is receiving a milder impulse from the world economy than it did in
earlier years. The recent evolution of the labor market stands out. If it deteriorates more
sharply or if the world economy acquires a more adverse configuration, this might result in
lower GDP growth than forecast. Conversely, if the labor market makes smaller adjustments
and/or the external economy remains fairly calm, output may perform better than expected.
This could translate into stronger consumption growth or more favorable investment, or both.
Upon assessing these risks, we estimate that the risk balance is unbiased for both output
and inflation.
To sum up, the macroeconomic scenario is, broadly speaking, the same as March's. Inflation
will return to the target range in the coming months and output will continue to post bounded
growth. Investment, however, will be worse than we expected before. The external scenario
continues to present risks and new volatility episodes will probably occur in the financial
markets.
Now let me turn to our Financial Stability Report (IEF).
Financial Stability Report
Our Financial Stability Report is released in June and December of each year, containing
recent macroeconomic and financial developments that might affect the Chilean economy's
financial stability.
This Report's external scenario includes the same risks I just described when examining the
Monetary Policy Report, particularly with respect to the US monetary policy and the evolution
of the Chinese economy. In the Financial Stability Report we also present the Brexit-related
risks, as well as the difficulties of European banks to resolve their non-performing portfolio
problems - legacy of the global financial crisis - in a scenario of weaker world growth
estimates and the global banking industry adapting to new regulatory standards. Most
recently, this scenario has become more complex because of banks' profitability being
threatened by low interest rates.
Another risk we need to monitor in the coming months has to do with the prices of
commodities and their possible impact on the countries exporting them. Although lately these
prices have tended to stabilize, they are still lower than they were only a few years back and
might endanger the fiscal revenues of some economies. In this context, various risk-rating
agencies have downgraded the sovereign ratings of oil exporting countries, and further
revisions for other commodity exporters - Chile included - cannot be ruled out. Our rating
being unchanged is certainly good news, but let's not forget that this is a dynamic process
and we must never let go. The risk exists and it is up to our own policies to mitigate it.
On the domestic front, as I just said, local interest rates are low from a historical perspective,
reflecting monetary policy and external financial conditions. Thus, the downsloping trend of
long-term rates continues to encourage investment in medium- and long-term mutual funds,
which have reached high stock volumes. Accordingly, a significant increase in long-term
interest rates poses the risk of these agents becoming a magnifying channel if they react by
hastily selling off the assets in their portfolios.
As for the financial situation of companies, diverse indicators confirm the weakening
described in previous Reports. As of the first quarter of this year, the debt-to-GDP ratio
remained near 120 percent, which is relatively high compared to other emerging economies,
although at the margin it has stabilized and even declined a little (figure 11).
The financial indicators of companies reporting to the Superintendency of Securities and
Insurance (SVS) presented no big changes at the close of 2015. However, by historical
patterns, the debt level is high and profits are low. Still, exchange rate mismatch indicators
continue to show a limited exchange rate risk (figure 12).
The real-estate sector is adjusting after being very dynamic in 2015. New house sales in
Santiago fell sharply in the first quarter of 2016, largely due to advanced purchases last year
(figure 13).
A substantial part of the sales of last year were accounted for by promised purchases of
unfinished units, scheduled for delivery mainly this and next year. In this sense, one risk for
real-estate companies stems from such promises not being honored if the economic outlook
worsens. Finally, the vacancy rate in the office-space sector is around 10 percent, while
rental prices showed a slight reduction at the end of 2015.
In this context, the new house price index for Santiago as estimated by the Chilean Chamber
of Construction rose 6.8 percent in real annual terms in the first quarter of 2016, slightly less
than the 7.2 percent it showed in the third quarter of 2015. Meanwhile, in the third quarter of
last year, the house price index for both new and used units calculated at the Bank rose by
9.4 and 9.7 percent in real terms nationwide and in the Santiago Metropolitan Region,
respectively (figure 14).
About households, aggregate borrowing - the debt to income ratio, RDI - continues to rise,
in a context of weaker output and employment. The RDI reached 63 percent at the close of
2015, largely explained by an increased share of mortgage debt, which continues to expand
at a real annual rate of nearly 10 percent. The aggregate financial burden stands at 15
percent of the sector's disposable income (figure 15).
Although non-performing indicators for bank consumer credits remain low, lately there has
been some increase in the case of smaller amount loans. Here the risk arises of a more
drastic deterioration of the labor market that could hinder the households' repayment
capacity. Any developments on this front will need to be closely monitored over the coming
quarters.
As for the banks' lending activity, it is evolving in line with the state of the business cycle.
Real growth in commercial loans is in line with lower demand for credit by firms, consistently
with the reduction in investment and the results of our Bank Lending Survey. Consumer
credit growth recovered slightly and mortgage loans are still growing strongly, around 10
percent in real annual terms. Thus, the real annual growth rate of total banking credit is
around 5 percent. At the same time, aggregate default indicators are stable, despite some
deterioration in commercial loans.
As we pointed out in the last Financial Stability Report, our banking system's capitalization
levels have decreased in recent years. At the closing of 2015, the capital adequacy ratio
(CAR) was 12.6 percent. Although the announced capitalizations and accounting changes
will push this indicator slightly above 13 percent, a declining dynamic has been observed in
the past five years. This contrasts with the international trend, where banks have increased
capitalization in several jurisdictions. Thus, in an OECD comparison, Chile is in the lower part
of this ratio's distribution (figure 16).
Although the current capital levels are sufficient to absorb a possible severe stress scenario,
gaps have narrowed. While every bank's CAR exceeds the 8-percent regulatory minimum in
the stress scenario, the share of banks having a CAR above 10 percent in such a scenario
has dropped in recent years, to less than half the system's assets in the latest test
(figure 17).
Let me conclude with some final thoughts.
Concluding thoughts
In the past several months the macroeconomic scenario has brought no big surprises, but
that does not mean that challenges have been absent.
Inflation has dropped in line with expectations, but remains above the tolerance range. Our
projections indicate that in a few more months it will return to that range to then decline
towards the 3-percent target. If this is so, we will have ended quite a long period during which
inflation was at or above 4 percent and monetary policy-making has been particularly
complex, as we have had to deal with a significant depreciation of our currency and the
ensuing rise in prices, aside from the economic slowdown. Still we have been able to keep
inflation expectations over the projection horizon well anchored to the 3-percent target.
In the short term, there are obvious inflationary risks, which could again push back this
convergence. As we have said time and again, the short-term evolution of the exchange rate
is a very important determinant of the behavior of inflation, and therefore short-term inflation
will be affected if some of the external risks we have identified in our Reports come true,
namely: a trajectory for the fed funds rate well above what the market expects and a sharper
deceleration of the Chinese economy which would hit the copper price. The medium-term
impact of these events is harder to predict, and will depend on both the persistence of
exchange rate movements and their effects on output. The medium-term effects are, no
doubt about it, more important for monetary policy, because our policy framework defines
short-term inflation deviations as tolerable, as long as projected inflation two years out does
not depart from the 3-percent target. This approach is what allows us to keep inflation
expectations well anchored while applying a counter-cyclical policy stance in situations like
the present one.
Not denying the importance of this, I must say that the greatest challenge facing our
economy is growth. In our baseline scenario, 2017 will be the fourth year in a row with annual
growth around 2 percent, which is far from satisfactory. However, our scenario also assumes
that towards the end of next year the country will be approaching potential growth, which we
estimate between 3 and 3.5 percent. This growth trajectory leans on three fundamental
premises:
First, the impulse we are receiving from abroad, although milder than we could have
foreseen some years back, is not particularly low. Of course we would rather live in a world
of higher copper prices and two-digit growth in China. But in hindsight, that was clearly
unsustainable in time. Nevertheless, the world growth figures we see today and project for
the next two years, do not differ much from what we saw in 2015. The terms of trade should
tend to stabilize towards 2017 and external financial conditions are good by historic patterns.
Surely we face risks, but don't we always.
Second, from a macroeconomic standpoint, our economy is well balanced. The external
accounts are in good order, our fiscal policy is sound, inflation expectations remain well
anchored and, beyond the importance of mitigating the risks identified in the Financial
Stability Report, local financial markets are well equipped to contribute to that recovery.
The third premise is the return of confidence. On this point let me digress. It is not a good
sign for a goal of 3.5 percent growth to seem so elusive. Just a couple of years ago we
believed that growth between 4.5 and 5 percent was possible. After all, in the last thirty
years, the Chilean economy grew by an average of 5.2 percent annually. Certainly many
things have happened in the last thirty years that can explain this.
On one hand, there is the so-called "convergence" in economic growth. I mean, countries
with a higher per-capita income grow less on average than poorer countries, because the
richer ones have more capital and are closer to the technological frontier, so they find it
harder to sustain high growth rates. Therefore, it is only natural for a country that has
achieved the level of development Chile has to grow at a slower pace than it did three
decades ago.
On the other hand are some more specific elements, like the end of the boom in commodity
prices and mining investment. Also that the world is no longer what it was during that boom,
and us being a small, open economy are touched by that. All of it affects and is consistent
with our vision of lowering our trend growth to 3.5 percent.
But, why are we having such trouble in achieving that level of growth? There are two -
related - essential elements behind, where we are in debt: investment and productivity. If we
cannot ensure stronger growth in investment, our projections of economic recovery will
hardly be met and the labor market will deteriorate further. Obviously capital is a major
production factor which by itself has significant effects. But not only that, investment is critical
for us to be able to achieve productivity growth rates of close to 1 percent in our non-mining
sectors, an essential element in our trend growth forecast.
Without investment, technology becomes gradually obsolete and, very importantly, the kind
of shock that has hit the Chilean economy in recent years requires us to reallocate resources
from sectors that were very attractive in the past to others that must now pull the growth
wagon, especially non-traditional exports. But this reallocation, which according to our
research is an important source of productivity growth, can only be achieved if at the same
time there is investment in these new sectors. Thus, both factors are clearly related to each
other.
The question we must all ask ourselves is, if we have done enough to promote these factors.
I believe that the productivity agenda that was agreed on by different agents is a good
starting point that must be deepened and carried forward. But we must also bear in mind that
the loss in confidence affecting the country today, beyond specific causes, puts a brake to
investment. Remember, our baseline scenario assumes that confidence will recover.
As for monetary policy, it has done its bit, interest rates are today among the lowest ever and
will remain expansionary throughout the projection horizon. Monetary policy can help smooth
the business cycle and that has been our task, successfully I may add. However, the sources
of countries' long-term growth are in other areas of the economy that are clearly beyond the
reach of monetary policy.
It is important for us to understand, agree on and implement whatever is needed to take the
leap towards being a more just developed country. We must not forget that our region has
had failed experiences before. Countries that had all the conditions to become developed
didn't make it, and froze their economies exactly at that crucial moment. Today Chile is in a
state of anticipation. It is our duty to succeed and take the leap that is pending. On the part of
the Central Bank, with monetary policy and our role as financial regulator, we will continue to
work towards achieving the objectives we have been entrusted: to safeguard price stability
and the normal functioning of internal and external payments.
Thank you.
Figure 1
Inflation indicators (*)
(annual change, percent)
8 8
CPI
Services EFE
6 6
4 4
2 2
CPIEFE
0 0
Goods EFE
-2 -2
-4 -4
-6 -6
11 12 13 14 15 16
(*) As from January 2014, the new indexes with annual base 2013=100 are used, so
they are not strictly comparable with earlier numbers.
Sources: Central Bank of Chile and National Statistics Institute (INE).
Figure 2
CPI inflation (*) CPIEFE inflation (*)
(annual change, percent) (annual change, percent)
6 6
6 6
5 5
5 5
4 4 4 4
3 3 3 3
2 2
2 2
1 1 1 1
0 0 0 0
11 12 13 14 15 16 17 18 11 12 13 14 15 16 17 18
March'16 Report
June'16 Report
(*) Gray area, as from second quarter of 2016, shows forecast.
Sources: Central Bank of Chile and National Statistics Institute (INE).
Figure 3
Real exchange rate
(index, 1986=100)
120 120
110 110
RER
2001-2015 avg
100 1996-2015 avg 100
90 90
80 80
70 70
Figure 4
Real annual contribution to GFCF (*)
(percentage points)
16 16
16 Mining 16
12 12
12 12
8 8
8 8
Other
Non-mining
4 4
4 4
0 0
0 0
-4 -4
-4 -4
Housing
-8 -8
-8 -8
-12 -12
-12 -12
-16 -16
-16 -16
09 10 11 12 13 14 15 (e) 16 (f) 17 (f)
09 10 11 12 13 14 15 (e) 17 (f)
16 (f)
(*) 2015 mining investment is etimated using information from listed companies (FECU). Housing
investment uses data from the Chilean Chamber of Construction and National Accounts by
institutional sector. Other investment calculated residually. For 2016, forecasting models of the
Central Bank and other sectoral sources are used, such as the Capital Goods Corporation's surveys
and investment plans. (e) Estimate. (f) Forecast.
Source: Central Bank of Chile.
Table 1
Domestic scenario
(annual change, percent)
2014 2015 2016 (f) 2017 (f)
Mar'16 Jun'16 Mar'16 Jun'16
Report Report Report Report
GDP 1.9 2.1 1.25-2.25 1.25-2.0 2.0-3.0 2.0-3.0
National income 2.1 1.1 1.1 0.8 2.9 2.2
Domestic demand -0.3 1.8 1.5 1.0 2.6 2.4
Domestic demand (w/o inventory change) 1.1 1.3 1.5 1.1 2.3 2.1
Gross fixed capital formation -4.2 -1.5 0.5 -2.4 1.0 0.9
Total consumption 2.8 2.2 1.8 2.1 2.7 2.4
Goods and services exports 1.1 -1.9 0.6 1.3 2.4 2.1
Goods and services imports -5.7 -2.8 -0.6 -1.6 2.1 2.2
Current account (% of GDP) -1.3 -2.1 -2.5 -2.2 -2.0 -2.1
Gross national savings (% of GDP) 20.9 20.4 19.9 19.5 20.2 19.5
Nominal gross fixed capital formation (% of GDP) 23.0 22.7 22.6 22.0 22.1 21.6
(f) Forecast.
Figure 5
Labor market
(percent)
8 8
6 6
Unemployment rate
4 4
Salaried employment (y/y)
2 2
0 0
11 12 13 14 15 16
Source: National Statistics Institute (INE).
Figure 6
Contribution to annual growth in real wage mass (*)
(percentage points)
9 9
Wages
Real wage mass
6 6
3 3
0 0
Employment
-3 -3
09 10 11 12 13 14 15 16
(*) Moving quarterly average.
Sources: Central Bank of Chile and National Statistics Institute (INE).
Figure 7
Net capital flows (1) Nominal exchange rate (2)
(billions of dollars, moving month)
(accumulated change since May 2013 trough, percent)
100 100
30 30
Asia
Latin America (3) (6)
20 20
80 80
10 10
Comparable currencies
60 60
0 0
(4) (6)
Europe
-10 -10
40 40
-20 -20
Chile
20 20
-30 -30
Commodity
currencies (5) (6)
Latin America
-40 -40
0 0
05.13 05.14 05.15 05.16
13 14 15 16
May.13 May.14 May.15 May.16
(1) Latin America: Brazil, Chile, Colombia, Mexico and Peru; Asia: Korean Rep., Indonesia, Malaysia and Thailand; Europe: Czech
Rep., Hungary, Poland, Russia and Turkey. (2) Dotted vertical line shows March 2016 Monetary Policy Report 2016. (3) Includes
Brazil, Colombia, Mexico and Peru. (4) Includes Brazil, Colombia, Czech Rep., Korean Rep., Israel, Mexico, Philippines, Poland
and Turkey. (5) Includes Australia, Canada, New Zealand and South Africa. (6) WEO's April 2016 weights.
Sources: Central Bank of Chile, Bloomberg and Emerging Portfolio Fund Research.
Table 2
International baseline scenario assumptions
2014 2015 (e) 2016 (f) 2017 (f)
Mar'16 Jun'16 Mar'16 Jun'16 Mar'16 Jun'16
Report Report Report Report Report Report
Terms of trade -1.8 -4.5 -4.5 -4.2 -3.9 0.7 0.1
Trading partners' GDP 3.4 2