At the statistical close of this Report (28 August), the peso/dollar parity was somewhat above CLP660, 5.5% higher than at the close of the previous Report. In the days that followed the peso has depreciated further vis-à-vis the dollar. However, in multilateral terms the depreciation has been milder, even with an appreciation against other emerging and commodity exporters' currencies, reflecting the greater relative strength of the Chilean economy. The real depreciation of the peso has been lower (near 1% since the previous Report). As a working assumption, the baseline scenario of this Report continues to assume that, in the course of the policy horizon, the real exchange rate will go back to its averages of the last fifteen to twenty years (Figure 7). As for domestic credit, local financial conditions are still good, in line with the ongoing expansionary stance of monetary policy. Accordingly, the interest rates of many segments stayed low and credit growth remained limited. However, it is worth mentioning that commercial rates increased again, in a context where qualitative indicators report increased demand and more accommodating supply (Figure 8). For the moment, the higher risk perception has translated into a limited revision to global growth prospects, with decelerating growth rates in 2019 and 2020. By blocs, the outlook for developed countries does not differ from that in the June Monetary Policy Report. Instead, in the emerging countries the downward adjustment in Latin America stands out, especially Argentina and Brazil. Add the expected slowdown in China (Table 2).

The appropriate monetary policy response to this scenario depends largely on the magnitude and relative persistence of these shocks and their impact on inflation expectations. In any case, the Chilean economy has an economic policy framework that allows it to absorb external shocks and reduce their negative effects, particularly a flexible exchange rate and a monetary policy regime that, being based on a two-year inflation target, can act countercyclically. In the current external picture, those economies perceived as having weaker macroeconomic fundamentals may undergo abrupt changes in the financial conditions they face. The recent experience of Argentina and Turkey are good examples of this. In particular, the currencies of these countries have lost more than a third of their value in the last month and a half. Both economies share high inflation, monetary policy making with less credible targets, in a still highly dollarized economy and a fragile external position, resulting from a high currentaccount deficit and limited reserves. One Argentina-specific vulnerability is its high fiscal deficit at 6% of GDP in 2017, which is difficult to contain with a public debt denominated in dollars that exceeds 30% of GDP and whose service becomes complex in the current circumstances. Turkey, for its part, became highly dependent on external financing to sustain growth above its potential for several years. By 2019, the overall Turkish economy’s needs are estimated to approach 30% of GDP. 6  In Chile, the biggest reaction has come from the nominal exchange rate, while long-term interest rates have not been affected.