Today, the medium-term growth and inflation risks are unbiased, although in the short-term there are greater inflation-related risks. Our monetary policy is based on an inflation target two years ahead, so it requires having an opinion with respect to the most likely evolution of the macroeconomic scenario and associated risks. We are continually on the lookout for news about the local and international economic environments, checking them for consistency with our vision of the most likely or other alternative scenarios. To do so, we need to permanently adapt our vision on the economy and conduct monetary policy with flexibility, being careful not to overreact to onetime news that could trigger excessive pessimism or optimism that occasionally affect the expectations of consumers, businesses or investors in the financial markets. This prudence  BIS central bankers’ speeches  1  in our assessment of the state of the economy and related risks is vital for us to properly meet our obligations. At the same time, it is our job to provide grounds for our vision about the macroeconomic scenario and its consequences on the orientation of our monetary policy. The developments of recent months exemplify this. Many market agents’ opinions pointed at the Chilean economy being severely hit by the external situation. However, incoming data have shown us, as I said, that the risks coming from abroad are smaller than we thought before.
In trend prices, in 2012 the current account would post a deficit of somewhat less than 6% of GDP, not very different from that of 2011. We foresee y-o-y CPI inflation hovering around 4% well into the second half of this year, to later converge to 3% and remain there until the end of the projection horizon, this time the first quarter of 2014. Y-o-y changes in core measures will continue to rise in the coming months, and will converge to 3% more slowly than the CPI (figure 1). BIS central bankers’ speeches  3  This foreseen trajectory is based on the assumption that the propagation of supply shocks to other prices will occur according to historic patterns. It also assumes that wages will be adjusted on the bases of productivity and the inflation target, and that the RER will not change much. On the fiscal side, the baseline scenario estimates that the structural deficit will converge to 1% of GDP towards the end of the current Administration, as announced by the authority and in conformity with the Fiscal Responsibility Act. Finally, it uses as a working assumption that the MPR will follow a path comparable to the one that can be derived from the prices of financial assets observed at the statistical cutoff of this Report (figure 2). The baseline scenario reflects the events that the Board believes to be the most likely to occur with the information at hand at the statistical cutoff date of the Report.