MONETARY POLICY REPORT PRESENTATION BEFORE THE FINANCE COMMISSION OF THE HONORABLE SENATE OF THE REPUBLIC  Mario Marcel Governor Central Bank of Chile 14 June 2018    The June 2018 Monetary Policy Report can be found at http://www.bcentral.cl. Mr President of the Senate’s Finance Commission, senator Juan Pablo Letelier, senators members of this Commission, ladies, gentlemen, Thank you for your invitation to present the vision of the Board of the Central Bank of Chile (CBC) about the latest macroeconomic developments, prospects and implications for monetary policy. This vision is detailed in our Monetary Policy Report (the Report) released this morning. The information therein provide the backdrop for the decision adopted by the Board at yesterday’s monetary policy meeting. In this Report we confirmed that the evolution of the macroeconomic scenario has lowered the risks for the convergence of inflation to 3% within the policy horizon. This risk, that lingered for quarters, has faded in line with the gradual consolidation of the recovery it has shown since mid- last year and which has received an upward inflationary impulse coming from the increase in fuel prices in pesos. Accordingly, the lower bound defined for the 2018 growth range and the headline inflation forecast at December have been revised upward, while we reaffirm the trajectory of gradual convergence of core inflation to the 3% policy target over a two-year horizon. These projections are consistent with the two-year-ahead inflation expectations that have remained well anchored to the target.
China continues to be a source of risk, since it still has to resolve  4  imbalances in several of its markets. Added to this is the evolution of the oil price. If it increases or remains flat for longer than expected, it could have stronger effects on global growth and inflation. The bias and probability of external risk scenarios reinforces the need to maintain solid macroeconomic fundamentals, particularly for a small and open economy such as Chile’s. Actually, the recent events have had greater impacts in countries with greater indebtedness, fiscal deficit and / or current account deficits. At home, we estimate that the risks for activity are biased upwards. The data of the last few months have been higher than expected and we cannot rule out a scenario in which this greater dynamism persists, especially if investment improves above projections. This risk is partly moderated by the possibility that the labor market, and in particular private salaried employment, could take longer than expected to respond to the higher growth rates. On inflation, we estimate that risk balances are unbiased. The downward risks for its convergence to 3% have moderated. However, we forecast that CPIEFE inflation will remain below 2% for a while longer, considering that the determinants of inflation’s convergence to 3% in the medium term have not change significantly from March.