MONETARY POLICY REPORT PRESENTATION BEFORE THE FINANCE COMMISSION OF THE HONORABLE SENATE OF THE REPUBLIC∗  Rosanna Costa Governor Central Bank of Chile 5 April de 2023  The March 2023 Monetary Policy Report can be found on http://www.bcentral.cl. ∗  Introduction Mr. President of the Senate’s Finance Commission, senator Ricardo Lagos Weber, senators members of this Commission, ladies, gentlemen, On behalf of the Central Bank I thank this Commission for inviting us to present our views on recent macroeconomic developments, as well as their prospects and implications for monetary policy. This view is presented in detail in the March 2023 Monetary Policy Report, which we have published this morning. This background is also the rationale behind the decision adopted by the Board at yesterday's Monetary Policy Meeting. The presentation of this Report comes at a time when inflation is still very high. Although it has eased from the peaks of the third quarter of last year, it is still four times above the 3% target. Moreover, the core part of the CPI has been around 11% for some time now, accumulating a significant upward surprise in recent months. This is something that cannot be overlooked, as we are aware of the cost that this means for our country's families, especially the most vulnerable ones. There are several factors behind why inflation is taking so long to come down. Most important is that the economy has been unable to reverse the impacts of the overspending it accumulated between 2020 and 2021.
So, it raises the “signal-to-noise” ratio, which reduces uncertainty faced by private agents and strengthens the pass-through from communication to market expectations. Second, transparency is a mechanism for democratic accountability, in a world of policy discretion and central bank independence. Transparency makes it easier to judge whether a central bank is committed to its announced policy, and acts as a check on possible temptations to base policy on short-run or political considerations. In short, communication demystifies and democratises monetary policy. The empirical literature finds that better information about central bank actions can lead markets to do the central bank’s work for it. Blinder et al. (2001) was an early study which found that the US bond market’s ability to forecast Fed actions improved from around 1996 onwards, a few years after the Fed started announcing policy changes and publishing minutes of its meetings. Relatively small changes in the Fed’s policy rate were amplified by complementary movements in the bond market, which helps to stabilise the 1/5  BIS central bankers' speeches  macroeconomy.