Figure 1 Monetary Policy Interest Rate, Deposit Rate, and Forward Curve (percent) 12  12  10  10  8  8  6  6  4  4  2  2  0  0  Jan.08  May.08  180-day prime deposit rate  Sep.08 MPR  Jan.09 6 month forward rate  Source: Central Bank of Chile  BIS Review 35/2009  5  Figure 2 Lending Rate Spread over MPR and Other Financial Indicators (index, average Jan. 2002-Jul. 2007=1) 4.0  40  3.5  35  3.0  30  2.5  25  2.0  20  1.5  15  1.0  10  0.5  5  0.0  0  02  03  04  05  06  Lending spread over MPR  07  08  VIX (1)  09  Libor - OIS (2)  (1) The VIX index measures implied volatility in the U.S. stock market (2) Libor-OIS spread measures the difference between dollar financing cost for banks around the world and a measure of the expectation of the monetary policy rate in the U.S. Sources: Central Bank of Chile; Bloomberg.
José De Gregorio: Monetary policy and pass-through to interest rates Speech by Mr José De Gregorio, Governor of the Central Bank of Chile, before the Honorable Chamber of Representative’s Economic, Promotion and Development Commission, Santiago, 16 March 2009. The Spanish original prevails. *  *  *  Mr. President. I wish to thank you and the Economic, Promotion and Development Commission of the Honorable Chamber of Representatives for inviting me to speak about how our monetary policy decisions affect the country’s financial and lending conditions. The global economy is enduring terribly uncertain times, which have implications on our country’s prospects for growth and inflation. Thus, we share your preoccupation for evaluating how monetary policy actions – one of the main stabilizing tools we have available as a country – ultimately affect the cost of borrowing faced by households and firms. Monetary policy, in the context of an inflation target and a floating exchange rate like the one operating in Chile since 1999, is an important mechanism for smoothing out the business cycle. Periods of weak output and demand performance, which reduce the medium-term inflation outlook, lend themselves to countercyclical monetary policy actions that cushion the negative effects on consumption, investment and employment. This is what the Central Bank of Chile is presently doing, acting resolutely to moderate the effects that the global crisis – the worst we have seen in decades – is having in Chile.