However, the most notorious movements in the exchange rate have originated in its fundamentals (figure 7). The recent appreciation of the peso is largely responsible for the lower inflation that will prevail in the short term.2 In our Report’s baseline scenario, CPI inflation will be around 2% annually until early next year, returning to near 3% by the end of 2019. Meanwhile, core inflation, as measured by the Consumer Price Index excluding Food and Energy (CPIEFE), will be close to 1.5% by the middle of this year. At the same time, we estimate that once these pressures ease and the effects of the narrowing activity gap are more notorious—it is expected to close faster than we thought before—inflation will converge to the policy target during next year (figure 8). In this context, the Board will maintain the current monetary impulse until inflation shows clear signs of converging towards the target. This translates into a similar trajectory to the one that can be deduced from the surveys, that is, an MPR hovering around its current levels for several more months, but that by the turn of 2019 will have already begun a gradual normalization. Such normalization is likely to be completed beyond the monetary policy horizon of 24 months (figure 9). These projections, as always, are subjected to various risks. On the external front, in terms of its impact on local activity, the risk balance is downwards biased. The main risk is the possibility of a sharp deterioration of global financial conditions facing emerging economies.
This is the component of demand that lags the most and, at the same time, contributes to increase potential growth, helping to avoid price pressures and thus generating a more gradual convergence of inflation. Although the latest data shows an improvement in investment, and our projections assume that this variable will increase more than GDP in the 2018/2020 triennium, this is not assured. For it to materialize, some conditions are necessary, including an efficient financial system and authorities maintaining a favorable climate, helping projects to meet the environmental, urban and social standards adopted by the country. It is always important to be aware that investment is very sensitive to changes in the external and internal scenarios and depends strongly on having favorable conditions for projects to develop. In a more medium-term view, even in a scenario where the economy behaves as expected in the coming quarters, the fact that activity grows steadily at a faster-than-expected pace requires some changes of a more structural nature. Under current conditions, it is not possible to think that the Chilean economy can sustain growth rates above 3% to 3.5% in the long term, which is our estimate for trend growth in the medium term. In September of last year, we presented the Senate a document in which we gave an account of the factors producing this estimate of potential growth and possible ways to improve it.