(Updates with economist’s comments in fourth paragraph.)
Oct. 5 (Bloomberg) -- Chile’s economy expanded 4.6 percent in August from a year ago on an increase in retail sales, reducing the likelihood the central bank will cut borrowing costs next week as inflationary pressures persist.
August’s growth rate compares with 4 percent in July, 6.8 percent in the second quarter and 10 percent in the first quarter. The median forecast of 19 economists surveyed by Bloomberg was for economic activity to expand 4.8 percent in August.
Consumption in South America’s fifth-largest economy continues expanding, which may put pressure on prices and make it difficult for policy makers to cut the key interest rate this month, even as the global economy shows signs of slowing, Jorge Selaive, chief economist at Banco de Credito e Inversiones, said by phone from Santiago.
“There still are a lot of inflationary pressures brewing,” Selaive said. “Obviously, in the short term this places certain barriers against the central bank reducing the monetary policy rate.”
The peso rose 1 percent to 529.38 per dollar at 8:23 a.m. New York time from yesterday. The peso has declined 13 percent in the past month, the worst performance among the six other major Latin American currencies tracked by Bloomberg.
The peso’s depreciation also makes it unlikely policy makers will reduce interest rates in October, Selaive said. Lower rates could cause the peso to slip further and increase the price of imports.
“This central bank has never reduced the monetary policy rate in the face of a depreciation of this type and this strength,” Selaive said. “Cutting rates would feed inflationary pressures created by this change in the exchange rate.”
The central bank has kept its key interest rate unchanged at 5.25 percent in the past three monthly meetings. Policy makers will keep borrowing costs on hold in October and cut to 5 percent by January, according to the median estimate of 51 investors and traders in a Sept. 27 central bank survey.
Growth is slowing in the second half of the year and may drop to 5 percent in 2012 from about 6.5 percent this year, Finance Minister Felipe Larrain told lawmakers in Valparaiso yesterday. The 2012 estimate exceeded the median forecast of 65 economists in a Sept. 9 central bank survey for 4.7 percent.
“This 2012 growth forecast for the Chilean economy is within current market projections,” Larrain said. “Undoubtedly, within the context of a more complex external environment than we see today, it becomes harder to meet this forecast.”
Economic growth in August was unchanged from the previous month on a seasonally adjusted basis, the central bank said today. A reduction in mining output partially offset gains in retail, it said.
Internal demand will grow 5.5 percent next year, inflation will slow to 2.9 percent by December 2012 from 3.2 percent in August 2011, and copper prices will average $3.70 a pound, Larrain said.
Copper, which accounts for more than half of Chile’s exports, was trading at $3.075 a pound at 8:44 a.m. today.
--With assistance from Eduardo Thomson in Santiago. Editors: Philip Sanders, Richard Jarvie
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