MercoPress. South Atlantic News Agency

Chile raises basic interest rate to 4%

Confirming market expectations the Chilean Central Bank Monetary Council during its September meeting agreed to raise the basic interest rate 25 points to 4%, the seventh increase in 2005.

In a short release the bank said that in spite of the surge in oil prices, the global economic environment remains favourable with strong growth, plus high copper prices and advantageous financial conditions.

The Central Bank estimates that the effects of hurricane Katrina will be limited at global level, but have "represented an additional shock to fuel prices and somewhat less to international interest rates".

However Chile's domestic demand remains robust in clearly expansive monetary conditions, investment keeps growing vigorously and the improvement of the employment market have generated greater private sector expectations, thus greater consumption dynamism. Actually Chile is expected to grow over 6% in 2005.

Chilean inflation tendency remains in the target range of 2 to 4%, adds the Central Bank, but "private sector inflation expectations have risen particularly for the coming twelve months, which seems to be in line with the transitory inflation increase forecasted in the latest Monetary Policy report".

Therefore the Monetary Council considers that "in what seems the most probable scenario, it will continue to reduce the prevalent monetary stimulus so as to keep the trend within the annual inflation target of 3% in the usual horizon of 12 to 24 months".