Although every month we carry out exercises in which we try to measure the impact of macroeconomic changes on our own baseline scenario, we do not yet have a final and complete revision of such scenario which may allow us to estimate, with a reasonable degree of certainty, the expected growth for 2009. However, it is not hard to guess that such growth shall be below the 2-3% range we estimated in January. The exact figure remains to be seen. Anyway, a useful background could be the change in the projections of the analysts who answered the Economic Expectations Survey carried out by the Bank or the last issue of Consensus Forecasts. In these projections, the expected growth for this year went, respectively, from 2% and 1.9% in December to 0.2% and 0.0% in March. Actions taken by the Central Bank during the crisis Since the beginning of the crisis, halfway through 2007, the actions taken by the Central Bank have been focused on three fields: •  Accumulation of reserves. •  Supply of peso and dollar liquidity. •  Monetary easing. In the first half of last year there was an unusual strengthening of the peso, within a context in which there were great risks of deterioration of the international financial environment, such as it actually happened. At the same time, inflationary pressures had been relatively limited during the first quarter. In this scenario, the Bank’s Board decided to strengthen our international liquidity position by accumulating 8 billion dollars over an eight-month period.
An essential characteristic of the Chilean economy is that it has very few distortions in its price-setting mechanism. This results in increases in international prices of goods being transmitted quickly to local prices, while in many other countries this is avoided by explicit price controls or massive fiscal subsidies5 (Figure 3). The most critical phase in this process began in May 2008. After a period with stable monthly inflation figures in the first quarter of last year, large and unexpected inflation rises began taking place. As we then noted, propagation effects were being generated on a higher scale than expected and they could prevent inflation from reaching its target of 3% within the policy horizon of two years. Inflation expectations also started to rise. Both unwanted second-round effects and increased expectations demanded a fast and determined response by the monetary policy aiming at mainstreaming the inflation path to reach its target. This was essential to prevent inflationary persistence from generating a wage/price spiral which would have been harder to revert, if no early measures were adopted. In fact, output costs would have been even harsher, if inflation had been allowed to persist. But the world has changed, and it has done so in a radical way. What was expected to be a mere global economic slowdown, gradually turned into a severe drop in output. Consequently, commodities’ prices began to plunge with unusual strength. After having reached almost 150 dollars halfway through 2008, the oil barrel tumbled down to 40 dollars in December.