Chile’s Top Economic Authorities Flag Inflation and Growth Risks

(Bloomberg) -- Chile’s central bank Governor Rosanna Costa and Finance Minister Mario Marcel sounded the alarm on hurdles for the nation’s economic recovery at an event Thursday.

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Uncertainties over the strength of the US economy and global geopolitical tensions are keeping the central bank cautious as it works to bring inflation down to target, Costa told business leaders in Santiago. Locally, it’s important to consider the impact of higher electricity costs, she added.

Minutes later, Marcel also alerted to upcoming electricity price rises before criticizing Congress for dragging its feet on the government’s flagship bills, including legislation to improve pension payments. He chastised some lawmakers for considering proposals for another round of early pension withdrawals, which would “blow up the economic recovery.”

“If we don’t resolve all this soon, then we’ll be losing opportunities,” Marcel said at the event hosted by business association Sofofa. “Or we’re going to be playing with fire.”

Chile’s economic policymakers are working to keep the nation’s recovery on track following near stagnation in 2023. The central bank is extending its cycle of interest rate cuts and foreign direct investment is increasing. Still, a closely-watched gauge of activity posted monthly drops in March and April, while crucial sectors such as construction are still struggling.

In April, congress passed legislation laying out gradual increases to electricity tariffs that had been held down since a wave of social unrest in late 2019. Meanwhile, subsidies will be made available to vulnerable households.

The central bank’s effort to bring inflation back to the 3% target hasn’t concluded, Costa said. Still, anchored consumer price estimates provide greater flexibility, she said, adding that there’s need for additional interest rate cuts.

Policymakers are seen lowering rates by a quarter-point on June 18, according to a traders survey published on Monday. That would be a smaller reduction than the most recent drops of 50, 75 and 100 basis points, respectively.

Multiple rounds of early pension withdrawals approved by Congress during the pandemic unleashed some $50 billion into Chile’s economy, stoking consumer demand and propelling inflation to a three-decade high.

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