HomeEconomic IndicatorChile's central bank expects short-term price impact from tumbling peso, says Reuters.

Chile’s central bank expects short-term price impact from tumbling peso, says Reuters.

Chile’s Central Bank Expects Short-Term Impact on Prices from Peso Depreciation

Chile’s Central Bank Governor Rosanna Costa remains optimistic about the country’s economic outlook despite recent peso depreciation. In an interview, she stated that the bank expects the short-term effect on prices to be temporary and diluted in the medium term.

The Central Bank of Chile has maintained its 3% inflation target for the second half of 2024, showing confidence in the country’s economic stability. Costa emphasized the bank’s focus on long-term goals and urged against getting caught up in short-term fluctuations.

The peso has experienced a significant decline of almost 15% since July, which was further exacerbated by a 0.9% drop in the IMACEC economic activity index in August. However, the bank’s ongoing monetary easing cycle, coupled with a decrease in consumer prices and inflation, has supported the economy.

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To stimulate economic growth, the Central Bank has reduced borrowing costs by 175 basis points, bringing the benchmark rate down to 9.5%. Further rate cuts are expected in the coming months, aligning with the bank’s strategy to bolster the economy.

Costa acknowledged the influence of external factors such as the interest rates set by the U.S. Federal Reserve and other developed economies. While the bank has already considered their impact in its September report, Costa emphasized the need to closely monitor U.S. rates, as they could have a significant effect on the global economy.

The bank has also taken into account weaker demand from China, a key importer of Chile’s copper. Although the Chinese economy is expected to develop at a slower pace, Costa believes that factors beyond demand will help sustain copper prices.

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It is worth noting that despite the challenges posed by peso depreciation and external factors, Costa remains optimistic about Chile’s economic prospects. The Central Bank’s commitment to its inflation target and ongoing efforts to stimulate growth demonstrate its confidence in the country’s resilience.

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