Chilean central bank likely to continue wait-and-see mode

The Chilean central bank, BCCh, is expected to continue with its wait-and-see approach; however, risks on the downside have increased in the near term. In 2016, the Chilean central bank has adopted a wait and watch stance following its hawkish moves in the fourth quarter of last year.

During its recent meeting, the BCCh continued to mention subdued aggregate demand, especially investment demand, and anticipated the economy to grow below its potential in 2016. But the Chilean economic activity recovered to 2.5 percent year-on- year in August, but this is not seen as a change of trend, stated Societe Generale in a research note.

Two factors dominate the monetary policy stance of the Chilean central bank. They are the normalization process of the U.S. Fed’s rate and the sustainability of the Chinese economic rebound, noted Societe Generale. These factors continue to pose risks and might set off new financial volatility episodes. The global growth outlook, as well as outlook of Chile’s main trading partners have not rebounded much, implying that external support to Chile’s economy might continue to be weak.