Overall, in recent weeks, market expectations have raised the projections of short-term inflation. In addition, in the short term, inflation is affected by supply shocks that can have significant effects. Developments in the international oil market do not help the outlook for domestic inflation. Recent geopolitical tensions in the Middle East, which, among other consequences, led to an embargo on Iranian exports, and a harsh winter in the Northern Hemisphere have made the actual and expected oil price to escalate. The Brent price has risen more than 15% during the current year, while projections taken from futures contracts have also risen and point to an average price for oil of near $ per barrel during 2012. The persistence of a high price always raises worldwide concern because of its implications on inflation and growth. Concerns regarding inflation deal with the direct impact of fuel and energy inflation, and also with the secondary effects that they cause, which could be accentuated in an environment with a narrow output gap. Final thoughts Before I end my presentation, I would like to share some thoughts on monetary policy. As mentioned at the beginning of this presentation, our task as economic policymakers is made more difficult in a more uncertain environment. We make our best decisions based on whatever information is available at the moment. Currently, decision making relies on certain elements that point to opposite directions. On one hand, the international scenario is very complex, even though when compared to a few months back, the tensions seem somewhat smaller.
The MPR was not changed during the second half of 2011. Our December Monetary Policy Report highlighted the wide range of existing risks, which originated mostly in the directions that the Eurozone situation could take. The possibility of a debt event occurring in a systemic sized economy or of a disruptive breakdown of the euro were among the worst risk scenarios envisaged although we also considered the possibility of the Eurozone authorities agreeing on a set of measures and reforms that would restore market confidence. Considering the deleveraging process that households and governments of developed countries would need to go through, these economies would continue to grow at low rates for a long time, regardless of the way that the Eurozone situation was settled. All in all, the international baseline scenario was more negative than previously considered, and would impact Chile’s growth and inflation rates. The working hypothesis of that Report was that there would be MPR cuts in the short term, coinciding with the results of several expectations surveys. The MPR was finally lowered at the monetary policy meeting of January 2012. Current dilemmas Tensions in financial markets stemming from the Eurozone crisis have recently eased. The European Central Bank’s (ECB) measures to supply long-term financing to banks, the political agreements to define an institutional framework aimed at maintaining fiscal discipline in the medium term, and the announcement of a new rescue package for Greece, have all contributed to this.