José De Gregorio: The Monetary Policy Report and the Financial Stability Report Presentation by Mr José De Gregorio, Governor of the Central Bank of Chile, before the Finance Commission of the Honorable Senate of the Republic, Santiago de Chile, 20 June 2011. *  *  *  The Monetary Policy Report of June 2011 and the Financial Stability Report of the first half of 2011 are available at http://www.bcentral.cl. Introduction Mr. President of the Finance Committee of the Senate, Senator Eduardo Frei, senators. I am grateful for the invitation of this Committee to the Board of the Central Bank of Chile to share our views on the recent macroeconomic and financial developments, their prospects and implications for monetary and financial policy making. These are contained in detail in the Monetary Policy Report (IPoM) of June 2011 and in the Financial Stability Report (IEF) of the first half of 2011. The March IPoM stated that our economy was facing important challenges. In particular, it configured a scenario where inflation could post significant increases in the following months. We then said that the duty of monetary policy was to withdraw the monetary stimulus in a timely manner, in order to ensure that the inflationary pressures we were seeing and, especially, the risks we faced, would not alter the convergence of inflation to the threepercent target. Consistently, the Board acted preventively and raised the monetary policy interest rate (MPR) by 150 basis points between March and May this year, taking it above levels forecast by the market.
Figure 8  CPI inflation (*) (annual change, percent)  CPIX1 inflation (*) (annual change, percent)  10  10  10  10  8  8  8  8  6  6  6  6  4  4  4  4  2  2  2  2  0  0  0  0  -2  -2  -2  -2  -4  -4  -4  -4  07  09  11  13  07  IPoM Mar.2011  09  11  13  Report Jun.11  (*) Gray area, as from second quarter 2011, shows forecast. Sources: Central Bank of Chile and National Statistics Institute. BIS central bankers’ speeches  11  Figure 9 MPR and expectations (percent) 9  9  8  8  7  7  6  6  5  5  4  4  3  3  2  2  1  1  0  0 07  08  MPR  09  EES June 2011  10  11  FOS June 2011 (*)  12  13  Forward, Report June 2011  (*) FOS considers survey of first half of the month. Source: Central Bank of Chile.