There has been a limited pass-through of the peso depreciation in to final prices, but no spillovers in medium-term inflation expectations or nominal wages. Given the recent slowdown of output, we expect some increase in the amount of slack in the  BIS central bankers’ speeches  3  economy that should help to contain second round effects of this transitory inflation shock but we remain vigilant. Monetary policy has turned toward a more expansionary instance. The monetary policy rate (MPR) has been lowered by 100 basis points in recent months to 4%, and the Bank has pointed out in its latest communication that it will assess the possibility of introducing additional cuts according to the evolution of domestic and external macroeconomic conditions and their implications for the inflation outlook. This response of the Chilean economy to the changes in terms of trade and external financial conditions accurately reflects the operation of our policy regime. Over the years, the Central Bank has shown its commitment to take action to safeguard price stability. We have been consistent over time and we have built a credibility record that gives us room to use monetary policy in a counter-cyclical fashion when it is advisable. Our policy framework allows for timely adjustments of the real exchange rate and the interest rate, which provide the right signals to keep the domestic economy growing around potential, smooth the adjustment of the capital account, while inflation and inflationary expectations remains anchored. This makes a difference with our economic history.
Chile’s economic outlook for 2014 Nevertheless, the changes we have seen in the world macroeconomic scenario have had an impact that exceeded our forecasts of some months ago. Our new projections for 2014 will be released in our upcoming March Monetary Policy Report, but it should come as no surprise that our growth outlook for this year has been corrected downward from December. Private forecasts have already internalized this change. What are the factors behind this? First and foremost, there has been a slowdown in domestic investment, caused by both the abatement of global mining investment cycle and other specific developments. The slowdown in consumption has been more gradual, in line with fundamentals that, although they ceased to improve, are still good. As I said, investment is the one component of expenditure that has endured the biggest adjustments in the past few quarters. One explanation is the deceleration of emerging economies, China mostly, and the impact it has had on commodity prices, particularly metals. The price of our main export – copper – is around $ dollars per pound, compared with a little over $ a year ago and nearly $ in early 2012. In addition, the outlook for future prices has also been revised downward, triggering a postponement of mining investments whose effects spread to other economic sectors. At any rate, what is happening in Chile has been mirrored in other metal exporters, but maybe with a different timing.