(Updates with comment from policy makers in fourth paragraph, swaps, peso in fifth.)
Oct. 3 (Bloomberg) -- Chilean policy makers only discussed keeping interest rates unchanged at their last monthly meeting as growing external risk was countered by a “tight” local jobs market and credit growth.
Policy makers voted unanimously to keep the benchmark rate at 5.25 percent on Sept. 15, according to minutes of the meeting published today on the central bank website. Borrowing costs in the world’s leading copper producer are at their highest level since January 2009.
The central bank focused its discussion on a possible deterioration of the world economy and its impact on Chile’s growth, which is showing signs of moderation, according to the minutes. Policy makers in their latest monetary policy report, published last month, estimate global growth will slow to 3.9 percent this year from an estimated 5 percent in 2010.
“One board member indicated that, in the face of extreme external scenarios, one probably would have to consider a more expansive monetary policy,” the minutes said. “However, one also couldn’t rule out that internally increased inflationary pressures were operating.”
Chile’s peso fell 1.1 percent to 525.46 per U.S. dollar at 9:17 a.m. New York time from 519.75 on Sept. 30. The currency’s 11 percent slump in September was the biggest monthly decline since Lehman Brothers Holdings Inc. collapsed.
Chile’s two-year interest-rate swap yield, which reflects traders’ views of rate decisions, was unchanged today at 4.13 percent after falling 59 basis points in September.
Market estimates of a rate reduction “were compatible with the predominance of negative risks in the different scenarios seen for the international economy and its consequences on the Chilean economy,” according to the minutes.
Gross domestic product in South America’s fifth-largest economy grew 8.4 percent in the first half of the year. Economic growth slowed to 4 percent in July from the previous year on a slowdown in manufacturing and a fall in mining production, the central bank said in a Sept. 5 statement.
Industrial output growth accelerated to a faster-than- forecast 1.7 percent in August from 0.7 percent in July, the National Statistics Institute said in a Sept. 29 report. Unemployment fell to 7.4 percent in the three months through August from 7.5 percent through July.
Inflation is estimated to fluctuate around the bank’s target of 3 percent after accelerating to 3.2 percent in August from 2.9 percent in July, board members said, according to minutes of the meeting.
“All the board members agreed that keeping the monetary policy rate at its current level was the most appropriate,” according to the minutes. “They also agreed that the current level of the monetary policy rate would allow it to react with flexibility if abrupt changes in the external macroeconomic environment were confronted.”
With the third-highest rates among major Latin American countries, Chile has “space” to respond if the global economy deteriorates further, central bank board member Rodrigo Vergara said in a Sept. 28 interview in Santiago.
“We have seen in recent weeks some countries that have started the process of reducing rates,” he said two days after Israel unexpectedly cut borrowing costs. “If the world economy continues to get worse, it would be difficult for Chile not to follow that trend. But the amount and the timing will depend on the circumstances.”
Policy makers may cut interest rates three times over the next year, according to the median estimate of 51 investors and traders in a Sept. 27 central bank survey.
“Unless the external backdrop deteriorates very sharply we expect the central bank to set a formal easing bias before actually adding monetary stimulus to the economy,” Alberto Ramos, a New York-based economist at Goldman Sachs Group Inc., said in a note e-mailed to investors today.
--Editors: Philip Sanders, James Attwood
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