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Chile leaves benchmark interest rate unchanged for sixth straight month: 5.25%

Tuesday, December 13th 2011 - 22:27 UTC
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Expectations are that Central bank president Rodrigo Vergara will have the rate down to 4.5% by next May  Expectations are that Central bank president Rodrigo Vergara will have the rate down to 4.5% by next May

Chile’s central bank kept its benchmark interest rate unchanged for the sixth straight month at 5.25%, as slowing global growth shows little sign of damping inflation and demand in the world’s biggest copper producer.

The four-member policy board was led for the first time by new bank President Rodrigo Vergara following the ending of Jose De Gregorio’s term.

After raising interest rates faster than any major economy in the first half, Banco Central de Chile has space to stimulate growth if the European debt crisis causes internal consumption and consumer price gains to slow.

Still, after inflation quickened for the fourth straight month in November to threaten their annual target, policy makers had little choice but to keep the rate unchanged.

Policy makers will lower the rate to 5% in their next meeting and 4.5% by May as economic growth slows from 6.2% this year to 4.2% in 2012, according to the median estimate of 61 economists in a Dec. 9 central bank poll.

According to the same survey, inflation will slow by 1 percentage point by next November from 3.9% last month, which was the highest rate seen since April 2009. The central bank targets 3% inflation, plus or minus 1 percentage point over two years.

After posting year-on-year growth of 5.7% in September, the Chilean economy eased to a weaker-than-forecast 3.4% expansion in October, the slowest pace since the aftermath of the February 2010 earthquake that caused 30 billion dollars damage in the 203 billion dollars economy.

Retail sales, which expanded 8.6% in October, offset a drop in industrial output while unemployment in the month unexpectedly fell to 7.2% from 7.4% in September.

“There are signals that there is a deceleration, but we have no evidence that it has been stronger than what we were expecting” Manuel Marfan, the central bank’s vice president, said in an interview last week. “The economy has all the signals that it is still in the neighborhood of full employment and potential output.”

Peru’s central bank last week also kept its benchmark rate unchanged after consumer prices climbed faster than estimated.

Elsewhere in the region, Colombia in November raised its benchmark rate for the first time since July on economic growth that could be the fastest in Latin America in 2012.

Brazil, which is Latin America’s largest economy, reduced its key interest rate 50 basis points in each of its last three meetings to 11%, citing a need to mitigate the impact of the global economic slowdown.

Categories: Economy, Latin America.

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