José De Gregorio: Chile's latest Monetary Policy Report
Presentation by Mr José De Gregorio, Governor of the Central Bank of Chile, of the
Monetary Policy Report before the Honorable Senate of the Republic, Santiago de Chile,
7 September 2011.
* * *
The Monetary Policy Report of September 2011 can be found at http://www.bcentral.cl.
Introduction
Mr. President of the Senate, Senator Guido Girardi, Senators:
I am grateful for your invitation to the Board of the Central Bank of Chile to present our
Monetary Policy Report. As in September of every year, this presentation coincides with the
Central Bank Board's yearly account to the Senate, where we share with you our vision
regarding recent macroeconomic and financial developments in Chile, as well as their
prospects and implications on monetary policy conduct.
At the time of presenting this Report, we are about to complete three years since the
outbreak of one of the worst economic and financial crises in modern history, known as the
Great Recession. The string of events that followed the collapse of Lehman Brothers drove
the world to an unprecedented confidence crisis, with a drop in global output that has no
comparison with any other episode over the last eighty years.
Chile was able to mitigate the adverse effects of the crisis, and succeeded in quickly
recovering its levels of output and employment, in sharp contrast with what happened in
developed economies (figure 1). In fact, the closure of domestic output gaps - i.e., the
difference between actual and trend growth - that a year ago we expected to occur over the
course of 2011, took place in the first part of the year. The unemployment rate has fallen
rapidly and is now below its historic average.
Inflation, meanwhile, has concluded a process of convergence to the 3-percent target.
Inflation fears resurfaced during the first quarter of this year, but subsided after the Board's
monetary policy decisions and the changes in the external macroeconomic scenario. We
have thus arrived at a situation where the monetary policy interest rate (MPR) stands within a
range that is considered normal.
However, the events of 2008 still cast their shadow over the world economic outlook. Despite
the time elapsed and the economic and financial measures adopted by economic
policymakers around the world, we are still seeing the aftereffects of this episode. The underlying
problems that caused the disaster have not been totally resolved, and continue to hold back
the recovery of private demand. Added to this is the erosion of trust in the public finance
management in some Eurozone members and in the U.S., which prompted a new episode of
financial stress in early August, and still another one a few days ago.
The world economy is going through an extremely complex situation. Certainly, Chile has
tools to soften the impact of adverse external conditions. But as we have said time and again
in the past, we are not and cannot be immune to what happens outside our borders. We can
mitigate its effects, but we cannot avoid them altogether. Therefore, the external situation is
likely to have repercussions on our economy and, consequently, on our monetary policy
conduct. As I just mentioned, at the August meeting the Board withdrew the tightening bias
on the MPR it had communicated in previous minutes, which has reflected in the behavior of
market interest rates.
The baseline scenario I will be presenting in a moment assumes that the world economy will
grow less than we anticipated just three months ago. First-half output figures were pretty
weak in the developed world. Recent financial turmoil could aggravate in the second half of
the year. Developed economies' households continue to tighten their belts in order to reduce
their massive debts, but, in turn, this deleveraging process is restraining growth in domestic
demand and employment, prolonging balance sheet vulnerability. In addition, the fiscal
position of these economies has deteriorated after several years of fiscal deficit. Remedying
this situation will call for substantial adjustments in their public finances. Some of them could
be done in the medium term, for instance in the United States, while others need immediate
action, as is the case in some emerging European economies. In moments of weak private
demand, these adjustments could postpone the much expected recovery even further.
Add to this that monetary policy interest rates are at their all-time lows, with which the
capacity of central banks to increase the stimulus is also limited. In short, the tools
traditionally used to boost growth have little room for maneuver in the developed world.
Another source of risks that is being increasingly debated is the possibility of developed
economies, especially the U.S., enduring a long time of slow growth. Excessive private
debts, particularly of households, and public debt, combined with weak labor markets, are
determinants of this assessment. This could shape a similar situation to that of Japan after
the bursting of its housing bubble in the late 1980s, which gave way to a period of stagnation
that has seen no end. Although we believe this to be an unlikely scenario, its consequences
on the global economy could be severe.
Amidst these conditions, emerging economies continue to grow strongly. The risks of
overheating we saw only a few months back have diminished, partly because of the very
action of the adopted economic policies and, especially, of monetary measures. There are
still risks, however. For one, it is obvious that if developed economies continue to lag, the
external demand facing the emerging world will fall, hurting their growth potential. Although in
the current scenario some dynamism and a certain degree of decoupling are expected, this
cannot go on indefinitely.
Given the weakness of domestic demands in developed countries, they rely on their exports
to grow and to resolve their global imbalances. This puts pressure on emerging economies'
exchange rates and external accounts. This is one element we have seen in the past year,
with parities against the dollar posting the greatest appreciations of the last decade (figure 2).
So far, the Chilean economy has been able to withstand this challenge, but the risk of these
pressures intensifying is still latent. The real exchange rate has risen after the announced
intervention early this year, and now its level is near its average of the past 15 to 20 years
(figure 3).
Among the policies that emerging economies have used to mitigate the impact on their
currencies has been the adoption of foreign exchange measures. These have taken a variety
of forms, including foreign currency purchases and the implementation of administrative
measures. In Chile, in early January, we announced a program of reserves accumulation of
12 billion dollars, which will be completed over the course of this year. This is the equivalent
of 5 GDP points, the largest since the first half of the 1990s (figure 4). To this date, we have
already made purchases amounting somewhat more than 8.5 billion U.S. dollars.
This program serves two purposes. The first, as we emphasized in the announcement, is to
transitorily attenuate the appreciation of the peso. This should allow the productive sector to
make the necessary adjustments within a context in which these pressures could remain for
a long time. The program did have an effect on the peso. Without the intervention, it would
have appreciated further. However, as proven by the evidence, and as our communication
highlighted, taking this kind of measures grants no permanent solution. The solution must
necessarily come from improvements in competitiveness and productivity.
The second purpose of the program is to strengthen our international liquidity position. This
means having the tools to deal with external turbulences. All the available evidence shows
that a strong international reserves position helps to protect the economy of financial shocks
coming from abroad, which in turn reduces the risk premiums of the economy. In our present
conjuncture, the level of reserves we are pursuing with the program sets us on a very good
foot in case of a major global disruption.
Holding reserves is tantamount to having an insurance policy. During the good times, it bears
a cost associated with the differential between the yield of foreign liquid and safe assets, and
the cost of the domestic liabilities that finance them. However, during episodes of global
recession and financial stress, the available reserves permit to cushion the impact of the
shock on the cost of the country's external financing and provide increased flexibility to
economic policies to mitigate the effects on the domestic economy.
Fluctuations in the international value of the peso cause significant volatility of our accounting
results, as we have seen in recent years. In good times, the peso tends to appreciate, which
generates accounting losses as the net worth is measured in pesos due to the effect of
reserves revaluation. But during times of global slowdown and increased financial stress, the
opposite occurs, with a peso depreciation and greater net worth in the books (figure 5).
As is typical of our yearly account to the Senate, in this Report we present the evolution of
the Bank's balance sheet and its prospects for the next year. In the baseline scenario, if the
gap between external and internal interest rates remains, we expect that the profitability of
our assets will continue to fall short of the cost of our liabilities. Although we foresee no
further deterioration in the Bank's equity, it will continue to be negative. The recent increase
in international reserves has a negative effect on these results, but it has to its favor the
intangible benefit of a strengthened liquidity position. However, as we said when we
announced the intervention program, the level of international reserves we will reach by the
end of the year is close to the limits that can be absorbed by our equity position. Still, this net
worth - which originates mainly in the costly financial crisis of the 1980s - has not been an
obstacle for the Bank to conduct its monetary policy with independence and flexibility.
To sum up, we face a complex external scenario. Doubts about how it will unfold and how it
will affect the Chilean economy advise acting with prudence, but the Board is convinced that
the country is on a good stand to deal with it. In the baseline scenario I will present to you in
a moment, we assume that the effects of the external scenario will be limited, and the
Chilean economy will grow close to its trend, with inflation near the target.
Now I will describe the factors that shape this baseline scenario and the implications of the
risks I have mentioned.
Macroeconomic scenario
In Chile, the dynamism of output and demand moderated further during the second quarter,
although somewhat less than had been forecast in June. Inflation, meanwhile, was slightly
below expectations of a few months earlier. Headline y-o-y inflation has hovered around
3 percent, while the annual growth rates of core measures remain contained (figure 6). The
inflation outlook has been characterized by limited transmission of food prices to the local
market. Similarly, the propagation of the price increases of these goods and fuels to other
prices has been in line with projections.
As I said a while ago, the external scenario has brought important news, with the
materialization of some of the risks considered in the last quarters. This, coupled with
prospects of slower growth in developed economies and concerns about the debt spreading
to Central Europe, has had a significant impact on global financial markets. The sovereign
spreads of several Eurozone members, like the premiums of some banks, are in all-time
highs (figure 7). Asset prices have seen substantial changes, where worth noting is the
decline in interest rates on long-term T-bonds of several developed economies that act as
safe havens. Stock exchanges have dropped significantly at the global level (figure 8). To
this is added, to a lesser extent, the strengthening of the dollar against some currencies, and
the strong appreciation of gold and the Swiss franc, also used as safe havens. Finally, it is
worth mentioning the decline in commodity prices, with the exceptions of agricultural goods
and, again, gold (figure 9).
Domestically, some variables of local financial markets have felt the external turmoil. The
Stock exchange has experienced significant setbacks and interest rates on Treasury and
Central Bank documents have fallen sharply (figure 10). The money and interbank markets
have continued to operate normally, and liquidity conditions in both dollars and pesos have
been unaffected by the increase in interbank premiums in developed markets. The peso, with
swings, stands now close to its levels at the statistical cutoff of June's Report.
In light of these developments, output figures for the second quarter and advanced indicators
for the third - which are still weak in developed economies - , the baseline scenario revises
downward by 0.2 percentage points the world growth estimate for 2011, and by half a
percentage point the one for next year (table 1).
The biggest change is for the U.S., where, aside from the low growth seen thus far, there is
the incidence of foreseeable fiscal adjustments after the approval of the higher limit for public
borrowing. Growth in the Eurozone is still expected to be slow. Also, it is foreseen that the
weakening of the developed world will have an impact on emerging economies which, in any
case, will continue to outperform their developed counterparts. This projected world growth
forecast is lower than consensus, which at the closing of this Report probably does not
reflect the full effect of current financial turmoil. Nonetheless, incoming reports by investment
banks do carry significant downward corrections for these developed economies, in line with
the assumptions that make up our baseline scenario.
As I said, concerns about an overheating of the emerging world and its consequences on
inflation have subsided. Adjustments already made to the monetary policies of several
economies, the weakening of the global economy, and the recent drop in commodity prices
are behind this assessment. So, several countries have already suspended their cycles of
policy rate increases and, in general, market expectations have adjusted to expect a
flattened rate. In the developed economies, it is most likely that monetary policy will hold on
to - or possibly even intensify - its current degree of expansiveness for some time. The
Federal Reserve has just announced its intention to keep the fed funds rate at a minimum at
least through mid-2013 (figure 11).
All these facts combined will result in that the external impulse that the Chilean economy will
be receiving over the coming quarters will be milder than previously estimated. On one hand,
the worsened global performance will have a negative impact on our trading partners'
economies. However, they will continue to grow above their 2000-2007 average. The
change in composition and weight of this group of countries, where emerging economies
- especially China - have sharply increased their share, explains this result. While in
2000 emerging economies weighed less than one third in the group of Chile's trading
partners, they are expected to be closer to one half in 2011 (figure 12). On the other hand, a
drop in the terms of trade is expected. This last projection is based on a copper price of
US$3.7 per pound in 2012 and US$3.5 in 2013, and a WTI oil price averaging around
US$90 per barrel in 2012-2013 (table 2).
In this scenario of reduced external impulse, the Chilean economy is forecast to grow in the
range of 6.25% to 6.75% this year, in line with June's projections. Up to the second quarter,
output was growing above the trend and above expectations in the June Report;
consumption was slowing down from its strong expansion but not as much as foreseen; the
labor market continued to give signs of being tight and financial conditions were still
favorable, with credit showing an increasing growth rate (figure 13). Our present scenario
foresees that domestic demand will grow 9.1% this year, more than forecast in the last
Report. This will reflect the impact of increased gross fixed capital formation of the first half,
especially in machinery & equipment, as well as greater inventory accumulation. Compared
with June, this projection assumes a faster convergence of output and demand during the
second half of the year. July's output figure, although influenced by specific developments in
the mining sector, reflects this trend.
The biggest impact of the change in external conditions will be visible in GDP growth of 2012.
For then, the baseline scenario assumes that GDP will grow in the 4.25% to 5.25% range
(table 3). The slowdown from this year responds to a number of factors. First there is the
convergence to expansion figures consistent with trend growth, which the Board continues to
estimate around 5 percent. Such convergence reflects the normalization of both the durable
components of aggregate demand and the MPR. Moreover, the effects of the low basis of
comparison associated to the earthquake and tsunami of 2010 - that influenced first-half
growth figures - will disappear. There is also the reduced impulse from abroad we will see in
the coming quarters, which I have already mentioned. We also assume that the fiscal balance
will converge to a structural deficit of 1 percent of GDP towards the end of the current
Administration, as announced by the authorities and in conformity with the Fiscal
Accountability Law.
This change in external conditions has also triggered significant changes in the inflation
outlook, especially in the short run. In the baseline scenario, the increase in y-o-y CPI
inflation towards the end of the year will be less than forecast in June, mainly responding to
the lower price of fuels. Accordingly, by year's end, CPI inflation will be 3.3 percent instead of
the 4 percent estimated in June. Going forward, inflation will remain close to the target
through the third quarter of 2013, which this time marks the end of the projection horizon
(figure 14). Private inflation expectations have been revised in the same direction and point
at CPI inflation being somewhat above 3 percent at the end of the year, and in line with the
target thereafter (figure 15).
Such a trend for inflation is based on several assumptions. As I said, that the economy will
grow around its trend in the coming quarters; that the real exchange rate will remain fairly
stable, in the range believed to be consistent with its long-term fundamentals; and that labor
costs will grow in line with the inflation target.
Regarding monetary policy, the MPR has reached a range considered normal. Unlike
predictions of some months ago, when most thought that the MPR would be raised further,
the changes in the macroeconomic scenario have led to a greater dispersion of private
expectations. Even so, the baseline scenario uses as a working assumption that, in the short
run, the MPR will stay where it is today (figure 16).
As usual, this scenario reflects the events that are believed to be the most likely to occur with
the information at hand at the Report's statistical cutoff date. There are risks that, if
materialized, will shape a different macroeconomic scenario than the one described here. On
this occasion, after thorough evaluation of the alternative scenarios, the Board estimates that
the risk balance is downward biased for output, and unbiased for inflation.
As I mentioned first, the main risks have to do with the complex global economic situation. It
cannot be ruled out that the recent episodes could happen again or intensify, affecting the
financial system and confidence of economic agents. The little room for maneuvering of
monetary and fiscal policies in the developed world complicates the response to such a
scenario.
Another part of external risks is associated to developed countries' growth beyond the
projection horizon. The forecast in the baseline scenario is less than market consensus, but
an even stronger than foreseen impact cannot be ruled out. Doubts persist about the
strength of the recovery of developed economies, and there is still the possibility of these
economies' potential growth having dropped as an aftereffect of the crisis. Such an
occurrence could have consequences on the level of interest rates, the speed at which
leverage problems will be resolved, and growth in emerging economies. In this scenario, the
world economy will grow less than in the past.
Nor can we rule out a scenario where the postponement of monetary policy rate increases in
developed economies and their lack of dynamism could lead investors to hunt for better
returns in emerging economies. This would trigger a resurgence of capital flows towards the
latter, complicating their macroeconomic policy-making.
Internally, risks are centered on the persistently strong output and demand. Although the
economy has evolved as predicted, the moderation has been softer than expected, the labor
market is still tight - various sources of casuistic information report difficulties and pressures
in the labor market - and the rate of credit expansion has increased. It is possible that,
beyond tensions in the external scenario, the Chilean economy continues to grow above
trend, leading to inflationary pressures incompatible with the inflation target.
There is no doubt that risks are important, but our monetary policy has the necessary tools to
mitigate the potential impact of worse-than-expected external scenarios, as it has shown in
the recent past.
Now allow me a few remarks to wrap up this presentation.
Final remarks
The external scenario is complex, but our economy has been very resilient to the effects of
the Great Recession. In 2009, the combination of significant fiscal and monetary impulses
averted the worse effects of the global crisis. Thus, after a couple of quarters in which
uncertainty swept the entire world and hit our economy with special force, we recovered with
great vigor. Even in the aftermath of the earthquake and tsunami of February 2010, Chile
rapidly returned to a path of sustained growth, with an unprecedented recovery of
employment, and unwavering strength. All within a context of low inflation, despite the
international price shocks.
Monetary policy has given practical proof that it can act with flexibility and determination, and
be resolute in attenuating the effects of the external cycle on our economy. As I said, at three
years after the outbreak of the crisis we are still enduring its consequences. Chances are, its
reverberations will continue for a while longer. The task of monetary policy is to preserve its
necessary capacity to react in difficult times, the same capacity it has displayed to withdraw
the stimulus packages in due time and prevent costly adjustments later.
The Board will continue to fulfill its legal mandate of safeguarding price stability and the
normal functioning of the payments system. Accordingly, it reaffirms its commitment of
conducting monetary policy with flexibility, in order for projected inflation to stand at 3 percent
over the policy horizon. An environment of low inflation improves households' welfare,
particularly those less capable of protecting themselves from rising prices. Furthermore,
keeping inflation low and stable permits to soften the fluctuations of output and employment,
which contributes to the people's well-being. Chile must continue on a path of growth that will
ensure continual progress of the living standards of its inhabitants.
The world, including our country, is living a decisive moment. Developed countries must
make costly, complex, yet unavoidable adjustments. The experience of the developed world
confirms the need to safeguard macroeconomic balances, both public and private, as well as
a strong, well regulated financial system. The fragility of financial systems and fiscal
accounts of some developed economies have caused a recoiling of living standards and
could compromise their growth ability for a long while.
Figure 1
Gross domestic product
(index, IV.2007=100, quarterly series)
115 115
110 110
105 105
100 100
95 95
90 90
IV.07 IV.08 IV.09 IV.10
Chile U.S. Eurozone U.K.
Sources: Central Bank of Chile and Bloomberg.
Figure 2
Real exchange rates around the world
(index, July 1994-July 2011 average = 100)
180 180
160 160
140 140
120 120
100 100
80 80
60 60
U.S.
U.K.
Rep. Peru
India Chile
Israel Japan
Brazil China Africa Korea
Russia
Poland Turkey
Mexico
Canada Norway Sweden
Zealand
Hungary
Thailand Malaysia
Australia
Eurozone
Indonesia
N. Philippines
Czech
Switzerland
South South
Range (*) Spot Average
(*) The range shows peaks and troughs of the local currency during indicated period. The scale has been
adjusted to 180. The peak value for this country was 225.
Figure 3
Real exchange rate (*)
(index, 1986=100)
120
110
100
90
80
70
88 90 92 94 96 98 00 02 04 06 08 10
1991-2010 average 1996-2010 average RER
(*) Preliminary for August 2011.
Source: Central Bank of Chile.
Figure 4
Change in Central Bank of Chile's international reserves
(percentage of GDP)
8 8
6 6
4 4
2 2
0 0
-2 -2
-4 -4
91 93 95 97 99 01 03 05 07 09 11 (*)
(*) The reserves include the purchase of US$12.0 billion announced in January 2011. To forecast GDP,
growth and inflation projections in the September Report are used.
Figure 5
Central Bank of Chile balance sheet
(billions of pesos, percent)
3.000 30
2.000 20
1.000 10
0 0
-1.000 -10
-2.000 -20
-3.000 -30
97 98 99 00 01 02 03 04 05 06 07 08 09 10
Net result
NER variation (*)
(*) Corresponds to y-o-y exchange rate variation at December of each year.
Source: Central Bank of Chile.
Figure 6
Inflation indicators
(annual change, percent)
12 12
10 10
8 8
6 6
4 4
2 2
0 0
-2 -2
-4 -4
06 07 08 09 10 11
CPI CPIX1 CPIX CPI w/o foods & energy
Figure 7
Sovereign risk premiums (*)
(basis points)
2.500 2.500
500 500
2.000 2.000
400 400
1.500 1.500
300 300
1.000 1.000
200 200
500 500
100 100
0 0
0 0
ene.10jul.10ene.11jul.11
ene.10 jul.10 ene.11 jul.11
10 Jul. 11 Jul. 10 Jul. 11 Jul.
Ireland Portugal Greece Italy France Germany Spain
(*) Measured using 5-yr CDS premiums.
Fuente: Bloomberg.
Figure 8
World stock exchanges (*)
(index, 01/01/2008=100; 01/03/2011=100)
120 120
120 120
100 100 110 110
80 80
100 100
60 60
90 90
40 40
80 80
20 20
70 70
08 09 10 11
Jan.11 Apr.11 Jul.11
Jan.11 Apr.11 Jul.11
Latin America Emerging Europe
Developed markets Emerging Asia
(*) Corresponds to MSCI indes in local currency.
Figure 9
Commodity prices
(index, 01/01/2007=100)
300 300
250 250
200 200
150 150
100 100
50
50
0 0
07 08 09 10 11
Copper WTI oil Agricultural products (*) Gold
(*) Using the Godman Sachs aggregate index.
Sources: Central Bank of Chile and Bloomberg.
Figure 10
Nominal interest rates on Central Bank of Chile bonds (*)
(percent)
6.50 6.50
6.25 6.25
6.00 6.00
5.75 5.75
5.50 5.50
5.25 5.25
5.00
5.00
4.75 4.75
Jun.11 Jul.11 Ago.11
BCP-2 BCP-5 BCP-10
(*) Dotted vertical line marks date of publication of June 2011's Monetary Policy Report.
Source: Central Bank of Chile.
Table 1
World growth
(annual change, percent)
2000-2007 2009 2010 2011 (f) 2012 (f) 2013 (f)
average (e) Jun.11 Sep.11 Jun.11 Sep.11 Sep.11
Report Report Report Report Report
World at PPP 4.2 -0.6 5.0 4.1 3.9 4.5 4.0 4.5
World at mkt exchange rate 3.2 -2.1 3.8 3.2 3.0 3.8 3.3 3.7
United States 2.6 -3.5 3.0 2.7 1.6 3.2 2.0 2.8
Eurozone 2.2 -4.1 1.7 1.7 = 1.7 1.5 1.2 2.1
Japan 1.7 -6.3 4.0 -0.6 -0.5 3.1 2.8 1.8
China 10.5 9.2 10.3 8.9 9.0 8.6 8.3 8.7
Rest of Asia 5.1 0.1 7.8 4.8 4.9 4.9 4.5 5.0
Latin America (excl. Chile) 3.5 -2.0 6.3 4.2 4.2 4.3 3.9 4.2
=
Commodity exporters 3.1 -1.2 2.9 2.7 2.2 3.0 2.5 3.2
Trading partners 3.6 -0.4 5.9 4.3 4.2 4.7 4.3 4.6
(e) Estimate. (f) Forecast.
Sources: Central Bank of Chile based on a sample of investment banks, Consensus Forecasts, IMF, and statistics bureaus of
respective countries.
Figure 11
Actual and expected monetary policy rates around the world (1)
(porcentaje)
9 9
876543210 876543210
05 07 09 11
Developed (2) Emerging (3) Chile
(1) Simple average of monetary policy rates of each group of countries. Gray area, as from September
2011, shows market expectations in Bloomberg survey. For Chile, the averaged linear interpolation
between the August EES and the FOS of the second half of August is used. (2) Includes the Eurozone,
Japan, the U.K. and the U.S. (3) Includes Brazil, China, Colombia, the Czech Republic, Hungary, Mexico,
Peru, Poland, South Africa and South Korea.
Sources: Central Bank of Chile, central banks of respective countries and Bloomberg.
Figure 12
Contribution to trading partners' growth (*)
(percentage points)
7 8
6
4
2
0
6543210
-1
-2
-2
-3 -4
90 95 00 05 10
Emerging Developed Trading partners
(*) Gray area, as from 2011, shows forecast.
Source: Central Bank of Chile based on a sample of investment banks, Consensus Forecasts, IMF and
statistics bureaus of respective countries.
Table 2
International baseline scenario assumptions
2009 2010 (e) 2011 (f) 2012 (f) 2013 (f)
IPoM IPoM IPoM IPoM IPoM
jun. sep. jun. sep. sep. 11
11 11 11 11
(annual change, percent)
Terms of trade 4.6 23.8 -1.6 -1.8 -2.1 -5.3 -2.6
Trading partners' GDP -0.4 5.9 4.3 4.2 4.7 4.3 4.6
World GDP at PPP -0.6 5.0 4.1 3.9 4.5 4.0 4.5
World GDP at mkt exchange rates -2.1 3.8 3.2 3.0 3.8 3.3 3.7
External prices (in US$) -6.2 5.8 9.0 9.8 2.8 2.9 2.1
(level)
LME copper price (US$cents/lb) 234 342 415 415 400 370 350
WTI oil price (US$/barrel) 62 79 99 93 103 89 91
Gasoline parity price (US$/m3) 471 598 825 816 832 797 774
Libor US$ (nominal, 90 days, %) 0.7 0.3 0.3 0.3 0.9 0.3 0.3
(e) Estimate. (f) Forecast.
Source: Central Bank of Chile based on a sample of investment banks, Consensus Forecasts, IMF and statistics bureaus of
respective countries.
Retail sales and new car sales (1) Employment and unemployment (1)
(2)
(index, centered on mean of period
(index, 2003=100) 19902011)
40.00 40
250 350
225 300
20.00 20
200 250
175 200 0.00 0
150 150
-20.00 -20
125 100
100 50
-40.00 -40
06 07 08 09 10 11
90 93 96 99 02 05 08 11
Durables
New cars
Employment Unemployment
Non-durables
(1) Seasonally-adjusted series. (2) Sold during moving quarter.
Sources: National Automobile Association of Chile, Central Bank of Chile, National Chamber of Commerce,
and Ricaurte, M. 2011, "Indicadores de Mercado Laboral para la Comparación de las Crisis Asiática y
Financiera Internacional". Preliminary document, Central Bank of Chile, June.
Table 3
Economic growth and current account
(annual change, percent)
2009 2010 2011 (f) 2012 (f)
GDP -1.7 5.2 6.25-6.75 4.25-5.25
National income -1.9 15.7 6.6 4.2
Domestic demand -5.9 16.4 9.1 4.5
Domestic demand (w/o inventory change) -2.9 11.5 9.7 5.4
Gross fixed capital formation -15.9 18.8 14.4 7.1
Total consumption 1.9 9.3 8.2 4.9
Goods and services exports -6.4 1.9 6.5 5.0
Goods and services imports -14.6 29.5 12.0 4.6
Current account (% of GDP) 1.6 1.9 -1.0 -2.1
(f) Forecast.
Source: Central Bank of Chile.
BIS central bankers' speeches
CPI inflation (*) CPIX1 inflation (*)
(annual change, percent) (annual change, percent)
10 10
10 10
8 8
8 8
6 6
6 6
4 4 4 4
2 2
2 2
0 0
0 0
-2 -2
-2 -2
-4 -4
-4 -4
07 09 11 13
07 09 11 13
Jun.2011 Report Sep.2011 Report
(*) Gray area, as from third quarter of 2011, shows forecast.
Sources: Central Bank of Chile and National Statistics Institute (INE).
Figure 15
Inflation expectations
Forward breakeven inflation based
EES and FOS surveys (*)
on swap rates
(percent) (moving weekly average, percent)
7 7
7 7
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
06 07 08 09 10 11
06 07 08 09 10 11
FOS 1 yr ahead
EES 1 yr ahead
1 in 1 3 in 2 5 in 5
EES 2 yrs ahead
FOS 2 yrs ahead
(*) The FOS uses survey of first half of the month, except for August 2011, which uses survey of second
half of the month.
Source: Central Bank of Chile.
Figure 16
MPR and expectations
(percent)
9 9
8 8
7 7
6 6
5 5
4 4
3 3
2 2
1 1
0 0
07 08 09 10 11 12 13
TPM EES, August 2011
Forward IPoM septiembre 2011 FOS, second half August 2011
Forward, Sep.2011 Report
Source: Central Bank of Chile.