Rodrigo Vergara: Chile’s latest Monetary Policy Report and Financial Stability Report Presentation by Mr Rodrigo Vergara, Governor of the Central Bank of Chile, of the Monetary Policy Report and the Financial Stability Report, before the Finance Commission of the Honorable Senate of the Republic, Santiago de Chile, 18 June 2012. The Monetary Policy Report of June 2012 and the Financial Stability Report of the first half of 2012 can be found at http://www.bcentral.cl/eng/index.asp  *  *  *  Introduction Mr. President of the Finance Commission of the Senate, Senator José García, senators members of this Commission, ladies, gentlemen. I am grateful for your invitation to the Board of the Central Bank of Chile to share our views on recent macroeconomic and financial developments, prospects and implications for monetary and financial policy making. These views are contained in detail in our Monetary Policy Report of June 2012 and our Financial Stability Report of the first half of 2012. For several quarters now the world economy has been suffering constant swings. We have said time and again that the causes and consequences of the financial crisis of 2008 are yet to be resolved. Thanks to a combination of economic policy responses and its healthy economies and financial systems, the emerging world succeeded in mitigating its effects and resuming a growth trajectory. But the developed world, especially the Eurozone, has been unable to regain its strength.
The Board of the Central Bank is firmly determined to adopt any measures needed to mitigate the adverse effects of a worsened external scenario, but it also must be careful not to allow medium-term inflationary risks to end up triggering an unwanted increase in inflation. In the baseline scenario that we believe to be the most likely, the world economy will remain weak and will give us less impulse than we expected a few months ago. Although the Chilean economy will be affected, it will continue to perform well. Inflation will stay around 3 percent. But the external risks facing said baseline scenario are significant. Let me now look into this setting in more detail, examining the risks we have identified in our Monetary Policy Report and our Financial Stability Report. 2  BIS central bankers’ speeches  Macroeconomic scenario As I just said, the external impulse on the Chilean economy in the next two years will be weaker than forecast in March. The poor performance of the developed world – for several quarters already – is being compounded with early signs of weakness in emerging economies, thus exacerbating the risks coming from abroad. I want to begin by the developed world. In the Eurozone, the new financial tensions have tightened credit constraints, while ongoing fiscal measures will not contribute to boost growth in the near term. The recession foreseen for the region this year will be deeper than previously estimated. The other developed economies will grow slowly.