Chile Flash: The Central Bank once again reduced its forecast growth range for 2014

Summary

The Monetary Policy Report for June contained another downward revision to the 2014 growth range, forecasting GDP expansion between 2.5% and 3.5% (previously at 3.0%-4.0%), and leaving the door open for another year of GDP growth below potential during 2015. The lower GDP expansion expected for this year was mainly driven by a decline in gross investment (-0.7% YoY) and also lower private consumption growth (3.4% YoY). In terms of prices, the bank revised significantly upwards its inflation expectations for 2014eop, from 3.0% YoY to a 4.0% YoY, highlighting the transitory acceleration of headline inflation due to exchange-rate depreciation, which will ease during 2015. Finally, for 2014 the Board’s new baseline scenario assumes an MPR path similar to that implicit in measures of private expectations, which calls for a policy rate of 3.50% (BBVAe: 3.25% in 2014eop). In this context, we still consider that further monetary stimulus is necessary during the current year.

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