Bloomberg News

Chile May Cut Rates Three Times in Next Year, Survey Shows

September 28, 2011

(Updates with inflation forecasts in fifth paragraph, peso in sixth paragraph, rate swaps in seventh paragraph.)

Sept. 28 (Bloomberg) -- Chilean policy makers may reduce their benchmark interest rate three times in the next year as inflation trails the central bank’s target, according to a survey of traders and investors released today.

The central bank will keep its key rate unchanged for the fourth straight month at 5.25 percent in October, cutting to 5 percent by January, 4.75 percent by April and 4.5 percent by October next year, according to the bi-weekly survey published on the bank’s website.

Chile has the highest interest rates among major Latin America economies behind Argentina and Brazil, which in August cut borrowing costs after five months of increases. Chile has space to follow Brazil’s lead if the world economy deteriorates, central bank President Jose De Gregorio said last week.

“We are a country with a lot of space for cutting rates, but whether we cut or not will depend on economic conditions,” he said in an interview in Washington. “It’s very difficult to say which way we should go, but of course we have space because inflation is on target.”

Annual inflation, which accelerated to 3.2 percent in August from 2.9 percent in July, will fall to 2.8 percent in 12 months, according to today’s survey of 50 respondents. The central bank targets annual inflation of 3 percent.

Chile’s peso was little changed at 505.75 per U.S. dollar at 7:32 a.m. New York time from 505.6 yesterday. The peso will trade at 506 per dollar in seven days, according to today’s survey.

The country’s one-year interest-rate swap, unchanged at 4.52 percent today, has fallen from 4.63 percent on Sept. 15 when policy makers last met.

--With assistance from Matt Craze and Eduardo Thomson in Santiago. Editors: James Attwood, Harry Maurer

To contact the reporter on this story: Randall Woods in Santiago at rwoods13@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net


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