Central Banker of the Year/ Americas: José de Gregorio, Governor, Banco Central de Chile

Central bank governor José de Gregorio modestly attributes this not so much to foresight, as to hindsight from the 1982 financial crisis. “That [crisis] made us build a very solid, deep financial market and banking system, but very traditional – what they can do with their assets is very limited. So the balances of the banking system have been very strong, we have been very cautious allowing new business.”

Still, his twin focus on price and financial stability has prompted several far-sighted actions during 2008. First, when inflationary risks began to rise significantly as high world oil prices fed into the Chilean economy, his team responded aggressively, with 50 basis point interest rate hikes in four consecutive months from June to September. With the benchmark interest rate now at 8.25%, this leaves the central bank with plenty of ammunition for rate cutting as the economy slows in 2009 and inflation returns to target.

Second, when sky-high prices for Chile’s copper exports were driving appreciation of the peso at the start of 2008, Mr de Gregorio took the opportunity to accumulate reserves, having done financial stability stress-tests of possible interest and exchange rate shocks. “We saw there was a risk of a major global financial meltdown, so we aimed to accumulate $8bn. When we got to about $6bn, there was the Lehman collapse and the peso was weakening, so we stopped intervening,” he says. The accumulation before September has given him a war-chest of $21.9bn (about nine months of import cover) to intervene in the other direction if necessary, smoothing any sharp falls in the peso, which has lost about 25% of its value since copper prices began to tumble in mid-2008. “In the past, a depreciation of this magnitude would have caused a collapse in the financial system in most emerging markets. But in this case, there has been no significant financial tension in Chile,” he says.