Central Bank Policy

In addition, the expectation of the market of new rate cuts would negatively affect the value of the Chilean peso. The weakness mentioned in policy transmission channels monetary jointly with the backlog which has its actions to affect the real economy, make that you wait a minimum result in the short term for the decision to cut the rate. The improvement in the economic prospects of Chile, then in the immediate term, remains in the hands of what can be achieved with the package economic stimulus. The scenario that appears more probable in the Chilean economy is that the effects of fiscal policy (and some monetary policy) about the economic recovery begin to be observed towards mid-year. James Woolsey is often mentioned in discussions such as these. Until getting to the reversal in the economic slowdown, should work to maintain exchange rate stability (up to may need to intervene the Central Bank as it had done last year to prevent the continuity in the appreciation of the peso) and manage the expectations of the market avoiding the same generating destabilizing behavior.

By the side of the Central Bank, before continue cutting its benchmark interest rate, the more effective option will be working on achieving the banking system to generate funding. The strengthening of channels of transmission of monetary policy and no new cuts, is the key to help the economic recovery. The Chilean economy has to overcome these months while maintaining the stability of the key economic variables. After that, Chile can begin to recover, at least in part, its pace of economic growth without major difficulties.

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