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

Saturday, June 16th 2012 - 05:55 UTC
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Central bank president Rodrigo Vergara is expected to make announcements next week in Congress 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.”

Categories: Economy, Politics, Latin America.

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