Chilean Central Bank wrestles with inflation 

Inflation is on the rise in Chile, and the Central Bank has released a statement on its plan to fight it. Chile’s annual inflation rate is the highest it has ever been in 28 years. Despite the Chilean peso also being down, the Central Bank assures that there has been minimal impact on the financial system. 

In a recent report by Trading Economics, Chile’s annual inflation rate has surged to 12.5 percent in June 2022. This is nearly a 1 percent jump from the month prior, and the highest reading since 1994. On a monthly basis, consumer prices only rose 0.9 percent compared to the 1.2 percent rise in May. 

The Central Bank of Chile has raised interest rates by 9.75 percentage points in the last year to combat inflation. 

The Chilean peso has dropped 18 percent versus the dollar since June. According to Reuters, the bank released a statement acknowledging the unusually high depreciation of the peso in recent weeks. 

US$25 billion dollar injection

To deal with this, the bank has also agreed to invest US$25 billion towards an intervention in foreign exchange markets. A US$10 billion sales program was also announced, along with the sale of foreign exchange hedging instruments for the same amount. Lastly, a US$5 billion currency swap plan was introduced, which aims to increase the provision of liquidity in dollars. 

“These exceptional measures are consistent with the monetary policy scheme, based on an inflation target and exchange rate flexibility,” said the bank’s statement.

As the bank continues to monitor the situation, it added that these current trends with local currency have not significantly affected the financial system. 

Trading Economics predicts that the inflation rate in Chile will drop to 10.7 percent by the end of the quarter. This prediction is based on global macro models and analyst expectations. As for longer term projections, they predict around 4 percent in 2023.

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