MercoPress. South Atlantic News Agency

IMF more upbeat about Chilean economy than the locals

Chile's GDP will likely grow a marginal 0.1% on the year in 2009, recovering to a 3% in 2010, said the International Monetary Fund in its April World Economic Outlook released Wednesday. The IMF outlook is more optimistic than local analysts' outlook who forecast the Chilean economy will contract 0.5% this year.

However both the IMF and local analysts, however, concur that GDP will recover next year, with a 3% on-year gain.

The Chilean central bank and the government Finance Ministry said they have revised their original 2%-3% GDP growth outlook for 2009 as international economic and financial conditions, especially growth outlooks for Chile's main trade partners, have deteriorated significantly in recent months.

Chile, one of the world's biggest exporters of copper, iodine, lithium, molybdenum, fishmeal, wood pulp and other natural resources, has a highly export-dependent economy.

In the first four months of 2009, the central bank has already cut the key rate a total 650 basis points, bringing the key rate to 1.75%, as a result of a rapid descent in inflation. According to the IMF, the central bank still has room to continue easing monetary policy

Last year, Chile posted an 8.7% increase in the consumer price index. For 2009, the IMF estimates a 2.9% on-year increase in the CPI and 3.5% in 2010, in line with the central bank's inflation target of 3%, plus/minus one percentage point in a 24-month policy horizon.

”Central banks in countries with more flexible exchange rates anchored in credible inflation-targeting frameworks (for example, Brazil, Chile, Colombia, and Mexico) would have room to cut policy rates further, particularly if inflation continues to decelerate rapidly” the IMF said.

Local analysts expect the Chilean monetary authority to continue cutting rates to around 1%-1.5%.