Chile: Expansion moderates
After several years of robust expansion, activity is projected to moderate and inflation to recede. The slowing world economy, tighter financial conditions and lower investments in mining and energy will all slow growth. Inflation will decline gradually as second-round wage increases from high commodity prices wear off and expectations are reanchored to the central bank’s target. Past current account surpluses have disappeared as copper prices have retreated from high levels.
To ensure an orderly decline in inflation, policies should remain prudent. Depending on world macroeconomic and financial developments, a gradual loosening of the monetary policy stance may be warranted unless the recent depreciation of the peso revives inflationary pressures. The fiscal rule provides an appropriate mild countercyclical cushion to activity.