(Bloomberg) -- Chile’s central bank started to consider cutting its benchmark interest rate as policy makers puzzled over the impact of a large influx of immigrants on the economy.
The discussion described in minutes of the central bank’s May 9 monetary policy meeting, when the key rate was left at 3%, show policy makers wondering why a larger workforce and consumer base resulting from the influx of migrants, mostly Venezuelans, didn’t meaningfully change Chile’s growth prospects. A key hypothesis is that economic slack, the so-called output gap, was bigger than they imagined all along, which would have allowed for additional monetary stimulus.
“Uncertainty persisted around the current level of capacity gaps, especially how the immigration phenomenon was affecting them,” they wrote in the report published Monday. “Although those sectors more closely associated with demand had expanded in line with projections, the gaps were probably bigger.”
Chile received about 700,000 migrants between 2015 and 2017, increasing the share of foreign-born residents in the country to 6.1% from 2.3%, according to a 2017 report in which the central bank says that immigration could provide an important boost to economic growth. A more recent report from the bank showed the unemployment rate isn’t dramatically different for native Chileans and immigrants.
If the output gap is indeed larger than forecast, the central bank’s monetary stimulus was lower than estimated, the policy makers concluded. Several board members even said that lowering interest rates now was “worthwhile considering,” partly as a “corrective action.”
While the impact of immigration on Chile’s output is still in question, the central bank could be preparing the market to discuss how that phenomenon will affect growth estimates, according to Itau Corpbanca chief economist Miguel Ricaurte.
“The central bank could be saying that we should have had lower rates than the ones registered, given that there was a larger gap that needed to be closed,” Ricaurte said. “In the short term, it could have an impact on monetary policy decisions, and in the long term on neutral rate estimates.”