MercoPress. South Atlantic News Agency

Chile’s leaves basic rate unchanged at 5%; annual inflation in May, 3.1%

Central bank president Rodrigo Vergara is expected to make announcements next week in Congress

Chile’s central bank kept its benchmark interest rate unchanged at 5% for a fifth consecutive month as inflation in the world’s top copper producer eased and unemployment continued to decline.

Central Bank President Rodrigo Vergara is expected to give a clearer guide to monetary policy when he addresses the Senate Finance Committee on June 18 after the bank publishes a new report with fresh forecasts.

Policy makers in their last report, published April 3, estimated that inflation would end the year at 3.5% and that interest rates would probably track market expectations. Since then, annual inflation slowed to 3.1% in May and one-year interest rate swaps, which reflect traders’ views of average borrowing costs, dropped 71 basis points, or 0.71 percentage point, to 4.72%.

While traders are forecasting a rate reduction within 12 months, economists surveyed by the central bank estimate the bank’s next move will be an increase.

Inflation may be slowing because of one-time factors such as lower oil prices and still poses a threat in the medium term, policy makers said in minutes of last month’s meeting. Noting a “tight” labor market and faster-than-forecast economic growth, central bank board members discussed raising interest rates before voting unanimously to keep them unchanged May 17.

The jobless rate unexpectedly fell to 6.5% in the three months through April from 7% in the same period last year. However the economy is showing signs of moderation as growth eased to 5% in March and 4.8% in April, the weakest expansion since November last year.

Chile in May posted the widest trade deficit since 2008 as exports dropped 12% from the previous year on lower copper prices. The metal, which accounts for more than half of the country’s exports, has averaged 3.7025 dollars a pound this year, down from 4.0222 a pound in 2011.

“The Chilean economy is open and integrated, meaning it isn’t able to remain isolated from developments,” central bank board member Sebastian Claro said in a 28 May speech in Santiago. “The central bank is monitoring developments closely.”