Chile: Macroeconomic Chile: Macroeconomic Outlook (and Tremors)Outlook (and Tremors)

Rodrigo ValdésRodrigo ValdésCentral Bank of ChileCentral Bank of Chile

AgendaAgenda

• External conditions: A double dip earthquake

• Policy response– Fiscal policy: Structural surplus rule– Monetary policy in an inflation targeting

framework and free float

• Results and further issues– Policy traction (effectiveness)– Maneuvering space

External ConditionsExternal Conditions

Terms of TradeTerms of Trade(Index 1996=100)(Index 1996=100)

Sept.

avg. 1990-1997

May

8888

9191

9494

9797

100100

103103

106106

9898 9999 0000 0101 0202 0303 0404

Chilean Sovereign SpreadsChilean Sovereign Spreads(basis points)(basis points)

EMBI

Chile 2009 Chile 2012

8080

100100

120120

140140

160160

180180

200200

220220

240240

Jul. 99Jul. 99 0000 0101 0202500500

600600

700700

800800

900900

10001000

11001100

12001200

(Chile)(Chile) (EMBI)(EMBI)

Net Capital InflowsNet Capital Inflows( % of GDP, four quarter moving average)( % of GDP, four quarter moving average)

-2-2

00

22

44

66

88

1010

9797 IIIIII 9898 IIIIII 9999 IIIIII 0000 IIIIII 0101 IIIIII 0202 III (p)III (p)

Policy ResponsePolicy Response

Central Government Fiscal SurplusCentral Government Fiscal Surplus(% of GDP)(% of GDP)

Official

-3-3

-2-2

-1-1

00

11

22

33

9696 9797 9898 9999 0000 0101 0202

W/O CSFPrivatiz.

Consolidated Public DebtConsolidated Public Debt(% of GDP)(% of GDP)

Gross

00

1100

2200

3300

4400

5500

8989 9090 9191 9292 9393 9494 9595 9696 9797 9898 9999 0000 0101 0202(June)(June)

3030

4040

5050

6060

7070

8080

Net

(Net)(Net) (Gross)(Gross)

Chile: Inflation and TargetsChile: Inflation and Targets(annual %)(annual %)

00

55

1010

1515

2020

2525

3030

3535

90 90 91 91 92 92 93 93 94 94 95 95 96 96 97 97 98 98 99 99 0000 0101 0202

Private Sector Expected Inflation Private Sector Expected Inflation (%)(%)

PRBC-360

one-year TAB1,01,0

1,51,5

2,02,0

2,52,5

3,03,0

3,53,5

4,04,0

4,54,5

5,05,0

0101 Feb.Feb. Apr.Apr. Jun.Jun. Aug.Aug. Oct.Oct. Dec.Dec. Jun.Jun. Oct.Oct.

survey

Short-Term External Debt and FX Short-Term External Debt and FX ReservesReserves(Debt/Reserves ratio, %)(Debt/Reserves ratio, %)

00

10102020

3030

40405050

6060

70708080

9090

9090 9191 9292 9393 9494 9595 9696 9797 9898 9999 0000 0101 0202(Sep.)(Sep.)

Financial System IndicatorsFinancial System Indicators(%)(%)

Non-Perf. Loans Profitability Basel Index

Dec.'00 1.73 12.7 13.34June '01 1.84 18.7 12.92Sept. 1.82 18.4 12.86Dec. 1.62 17.7 12.73

Mar. '02 1.74 16.9 13.71June 1.78 16.8 13.42July 1.81 17.1 13.44Aug. 1.82 17.1 13.58Sept. 1.86 16.6 n.a.

MPR and Central Bank Bonds MPR and Central Bank Bonds Interest Rates Interest Rates (%)(%)

(mpr, pdbc)(mpr, pdbc) (prc)(prc)

PRC-20

PRC-8PDBC-30

PDBC-90MPR

22

33

44

55

66

77

88

99

Aug-01Aug-01 Oct-01Oct-01 Dec-01Dec-01 Feb-02Feb-02 Apr-02Apr-02 Jun-02Jun-02 Aug-02Aug-02 Oct-02Oct-0200

11

22

33

44

55

66

77

Real and Nominal Exchange RateReal and Nominal Exchange Rate (index, 1996=100, w/r to G-5)(index, 1996=100, w/r to G-5)

NER-5

RER-5

8080

9090

100100

110110

120120

130130

140140

150150

160160

9696 9797 9898 9999 0000 0101 0202

Results and Further IssuesResults and Further Issues

GDP and Domestic Demand Real GDP and Domestic Demand Real GrowthGrowth(%, four quarters moving average)(%, four quarters moving average)

GDP

Demand-12-12

-9-9

-6-6

-3-3

00

33

66

99

1212

9797 IIIIII 9898 IIIIII 9999 IIIIII 0000 IIIIII 0101 IIIIII 0202 IIIIII

Further IssuesFurther Issues

• Policy traction (effectiveness) has been lower than expected– Political pressure for “more”– Questions regarding the value of credibility rewards– Anyway, what is the benchmark? (crisis vs downturn)

• Maneuvering space: bounded– Fiscal rule may collide with market expectations– FX market required the announcement of

intervention

Chile: Macroeconomic Chile: Macroeconomic Outlook (and Tremors)Outlook (and Tremors)

Rodrigo ValdésRodrigo ValdésCentral Bank of ChileCentral Bank of Chile