jose de gregorio : monetary policy report presentation by mr jose de gregorio, governor of the central bank of chile, before the honorable senate of the republic, santiago, 8 september 2010. * * * introduction mr. president of the senate, senator jorge pizarro, ladies and gentlemen senators, i am grateful for the invitation to the board of the central bank of chile to present our monetary policy report. like every year in september, this presentation coincides with the yearly report given by the board of the central bank to the senate, where we expose our vision of recent macroeconomic and financial developments in the chilean economy, as well as its prospects and implications for the conduct of monetary policy. in a few days we will be celebrating our country ’ s bicentennial, in a year 2010 that has been marked by tremendous human and economic challenges, and after a biennium 2008 – 2009 characterized by episodes of global recession and financial crisis that we had not seen in decades. the chilean economy has been able to weather these difficulties in an unprecedented way. macroeconomic stability has been preserved and the negative effects on employment and output of the turmoil of recent years have been properly dealt with. thanks to that we are now in a process of economic growth and recovery that is substantial, strong and healthy for economic activity, demand and employment. indeed, despite the context of an increasingly uncertain global economy, chile has continued to show significant growth rates, has reduced unemployment and has advanced in repairing the damages caused by the earthquake and tsunami that hit us last february 27th ( 27 - f ). at the same time, after a prolonged period of very low and even below - zero figures, inflation has returned to the defined tolerance range and is headed, according to our own projections and private expectations, toward levels consistent with the 3 % target range ( figure 1 ). that the stimulative monetary policy applied during all of 2009 bore fruit is without question. the extraordinarily expansionary conditions implemented more than a year ago by way of a historical reduction in the monetary policy interest rate, together with special liquidity facilities and the communication that the monetary policy rate ( mpr ) would be kept at its minimum level throughout the second quarter of this year, limited the persistence of the negative effects of the crisis on the capacity of households, firms, and financial institutions to repay their debts and generate income. furthermore, these measures helped set the grounds for the vigorous economic upturn we are seeing now. the expansionary monetary stance

) seasonally - adjusted series. sources : central bank of chile, national statistics institute ( ine ) and universidad de chile. figure 9 real exchange rate ( * ) ( index, 1986 = 100 ) rer average 1990 - 1999 average 1995 - 2009 ( * ) the dot shows the real exchange rate as of 6 september 2010. source : central bank of chile. figure 10 incidences on annual cpi inflation ( 1 ) ( percentage points ) cpi inflation ( annual change, percent ) - 2 - 2 - 4 - 4 - 2 - 2 ipom jun. 2010 ipom sep. 2010 - 4 03 04 05 06 07 08 09 - 4 public utilities ( 5, 43 % ) fuels ( 5. 7 % ) foodstuffs w / o fresh fruits and vegetables ( 21. 32 % ) fresh fruits and vegetables ( 2. 90 % ) other ( 64, 65 % ) ( 1 ) gray area shows forecasts as from the third quarter of 2010. ( 2 ) in parentheses, shares in the cpi basket with annual base 2009. for the period 2003 - 2008, weights in the basket of december 1998. for 2009, weights in the basket of december 2008. sources : central bank of chile and national statistics institute. figure 11 actual and expected mpr ( percent ) forward, june 2010 report fos 2q august 2010 mpr forward, september 2010 report ees august 2010 source : central bank of chile.