To fulfill the objective of price stability, the Bank has set as its explicit target that the forecasted inflation remain at 3% over 2-year periods. Chile was among the first countries to adopt an inflation target. In practice, the Monetary Policy Rate determines the level of the daily interbank lending rate, and is implemented through open market operations. The annual inflation rate in Chile rose to 2.9 percent in March of 2021 from 2.8 percent in the previous month. The Bank applies a floating exchange rate regime, in which the exchange rate is determined by the market, according to the supply and demand for currencies, which enables the implementation of an independent monetary policy. In practice, this means that the Bank must prevent the devaluation of the currency due to inflation. Inflation targeting is the new kid on the block of monetary regimes. The period analysed coincides with the implementation by Chile of a full -fledged inflation targeting (IT) framework, including a free floating exchange rate and the use of the short-term nominal interest rate as sole monetary policy instrument. Chile's central bank held its benchmark interest rate at a record low of 0.50% on 30 March 2021, as widely expected. Main upward pressure came from food & non-alcoholic beverages (5.2 percent vs 6.5 percent in February), housing & utilities (2.8 percent vs 2.6 percent), transport (0.8 percent vs -0.1 percent), furnishings & household maintenance (4.8 percent vs 5.2 percent) and health (1.7 percent vs 2.3 percent). This paper analyzes four main questions, exploiting Chile’s long IT experience. inflation targeting: it entails much more than a public announcement of numerical targets for inflation for the year ahead. One of the objectives that the Constitutional Organic Law entrusts to the Central Bank is “to ensure the stability of the currency”. Policymakers noted that global activity has been surpassing expectations as economies adapt to the pandemic. Chile's slowing economy The inflation rate in Chile has fluctuated from a low of 1.41 percent in 2010 to a high of 4.39 percent as of 2014. Free PDF. In addition, keeping inflation low and stable benefits the poor, since they struggle the most in protecting themselves from increases in inflation. Visit the website of the Numismatic Museum Chile Inflation Rate In Chile, the main components of the consumer price index are: Food and Non-Alcoholic Beverages (19 percent of the total weight); Transportation (14.5 percent) and Housing, Water, Electricity and Other Fuels (13.8 percent). Chile was the second country in the world to adopt inflation targeting (IT), setting its first annual target in September 1990. The IT framework’s objective is to an inflation targetrate of 3%, allowing for temporary deviations within a band of ±1% around the target. Since then, many emerging market economies have also switched to inflation targeting: Brazil, Chile, Czech Republic, Hungary, Israel, Korea, Mexico, Poland, the Philippines, South Africa, and Thailand. Consumer prices in Mexico rose 6.08% in April compared to a year earlier, while Chile’s annual inflation sped up to 3.3%. 3 CENTRAL BANK OF CHILE FEBRUARY 2007 Inflation targeting in Chile. It was the highest inflation rate since September, with upward pressure coming from food & non-alcoholic beverages (7.8 percent); housing & utilities (2.2 percent) and education (3.6 percent). Inflation targeting in Chile Inflation history Institutional framework IT Phases Results 2. Low and stable inflation contributes in several ways to greater economic growth. To safeguard this role, the monetary policy of the Central Bank of Chile must protect the value of the national currency, the peso, aiming at keeping inflation stable and low. When the inflation target was first introduced, soon after the new legislation granting increased independence to the Bank of Chile in 1989, the exchange rate band was flexible with a band of around ±10 per cent. The Trading Economics Application Programming Interface (API) provides direct access to our data. years). The Board of the Central Bank discusses and sets the level of this interest rate at its Monetary Policy Meetings, and communicates a trajectory that achieves the inflation goal over two-year terms. Corbo,V., Landerretche, M.O. On a monthly basis, consumer prices grew by 0.4 percent, precisely the same pace as in March. The CBoC pursues an inflation target of 3%, with a tolerance range of 1% (below or above). The set of actions taken by the Central Bank to meet this objective is called Monetary Policy. Concluding remarks. The question, then, is whether this behavior has been consistent over time. Inflation has followed a relatively stable trajectory since the year 2000, remaining under 10%, despite the temporary surge of some inflationary pressures in the year 2008. In contrast, inflation eased slightly for food & non-alcoholic beverages (5.0 percent vs 5.2 percent). Figure 2 depicts trends in the exchange rate band and the market exchange rate. An inflationary past suggested the combination of tough inflation targeting parameters (to enhance Central Bank’s reputation) and a gradual transition from moderate high inflation to a long run goal of 3% (the ex post policy horizon –or implicit targeting horizon- was nine! On the other hand, prices of communication fell 1.6 percent. On the other hand, costs continued to fall for transports (-1 percent, the same as in January) and communications (-1.4 percent vs -1.8 percent). The Central Bank of Chile structures its monetary policy employing a conceptual framework of inflation targets, which is complemented by a floating exchange rate regime. Education account for 8 percent; Miscellaneous Goods and Services for 7.2 percent and Furniture and Household Equipment and Conservation for 7 percent. (Bloomberg) -- Chile’s inflation surged more than all analysts expected in February, challenging bets that the central bank will cut its interest rate this month to stimulate an economy damaged by protests and a global downturn.Consumer prices rose 3.9% from a year prior, just shy of the 4% upper limit of the central bank’s target range and also the fastest clip since July 2016. The content of this page is only found in Spanish, Canal de Denuncias para Oferentes y Proveedores, Compendium of International Exchange Regulations and its Manual, Compendium of Monetary and Financial Regulations and its Manual, Política Monetaria Banco Central de Chile. The annual inflation rate in Chile decreased to 2.8 percent in February 2021 from 3.1 percent in the previous month. Downloadable! measures of inflation deviations from target, Chile ranks among the most accurate inflation targeters in the sample of nineteen countries. In this context the central bank simultaneously tightened monetary policy and decided to adopt an annual inflation target as its nominal anchor. Chile was the second country in the world to adopt inflation targeting (IT), setting its first annual target in September 1990. The Federal Reserve manages inflation with an inflation targeting policy. 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