Let me share with you some thoughts about what I have perceived at the meetings I have held in recent months with monetary authorities around the world. The central bank governors of developed economies, plus some from emerging markets, get together once every two months to share our views on the global economic and financial situation. Two things have called my attention in the three meetings I have attended since I assumed as the governor of the CBC. On the one hand, the severity and gravity of the situation of some developed countries. Being so distant geographically from the main financial centers of the world, in Chile we often fail to grasp in full dimension the hardships facing some economies that interact with us. These meetings allow us to see firsthand these situations and feel their true magnitude. On the other, I am amazed by the high prestige that the Chilean economy enjoys in these same arenas. It is clearly set apart from others, because of its strength, its sound macroeconomic administration and the efficacy of its institutions. Of course this makes us confident as it gives us more and better tools to confront possible shocks coming from abroad. Our responsibility is twofold. On the one hand, is to keep inflation low and stable, to help in achieving sustainable growth. On the other hand, is to contribute with our powers to identify and address the risks threatening the normal functioning of our financial system.
As in late 2011, the main effects of these tensions in emerging economies, aside from lower commodity prices, have been the depreciation of their currencies, fallen stock prices and increased risk premiums on their external bonds. Chile has not been spared, although as of the statistical closing of these Reports the effects have been limited. Compared with March, the peso/dollar parity has depreciated somewhat below 5 percent; the stock market, as measured by the selected price index IPSA in pesos, has lost over 7 percent, and the sovereign premiums of Chilean CDS have risen nearly 40 basis points. Money markets, meanwhile, have operated normally. In contrast with the developed world, in Chile domestic output and demand are still strong. In the first quarter, y-o-y GDP growth exceeded March’s forecasts. However, in quarter-to-quarter terms it lost strength with respect to late 2011 and grew according to trend. Inflation has been lower than expected, which, combined with the drop in international fuel prices, has reduced the risks for its short-term evolution. In general, medium-term inflationary risks are still latent because domestic markets remain tight. In this context, the Board has kept the monetary policy interest rate (MPR) at 5 percent since January, and has conditioned its future movements to the implications of domestic and external conditions on the inflation outlook. Chile is on a healthy position to confront further deterioration of the global scenario.