% annual growth rate:
|Eight years to 2018||11.02%||6.98%|
Sources: M3 from Banco Central de Chile database and nominal GDP from IMF database, as at March 2020
The medium-term relationship between money and nominal GDP growth in Chile, 1987-2018
Five-year moving averages of annual % changes, with 1989 being the start of the first five-year period
Comment on monetary trends in Chile
Chile suffered from severe inflation in the early 1970s, including a spell of hyperinflation in 1973, as a result of a huge increase in government spending during the Allende years without any corresponding increase in taxation. The adoption of a fixed exchange rate in the 1980s saw inflation brought under control. However, the resultant exchange rate appreciation exacerbated the external imbalances of the economy. The abandonment of this regime resulted in the collapse of the banking system, which had to be rescued by the government. However, the granting of independence to the Banco Central de Chile, the country’s central bank, in 1989, proved to be a turning point for the economy. Inflation targeting was introduced in the early 1990s and the target was gradually reduced until it reached 3% in 1999. This same year also saw the country adopt a flexible exchange rate system, as the exchange rate had only been allowed to fluctuate within certain bands during the 1990s. In recent years, Chile has enjoyed a long period of relatively stable broad money growth compatible with steady growth of nominal GDP. Fiscal deficits have been avoided and Inflation has hardly breached the 10% threshold for some 30 years now. Chile was relatively unaffected by the Great Recession of 2008-9 and remains one of the most stable countries in Latin America, although its economy needs to diversify from its current dependency on mining.