Bloomberg News

Chile Has Tools to Act as Uncertainty Grows, Vergara Says

October 17, 2011

(Updates with comments from central bank board member in second paragraph.)

Oct. 17 (Bloomberg) -- Chile’s central bank and government have monetary and fiscal instruments to respond if growth moderates faster than forecast amid concern over the European debt crisis, bank board member Rodrigo Vergara said.

“Chile isn’t immune to the external financial events, but it has the tools to mitigate possible impacts,” Vergara said during a speech in Santiago today. “The possibility of extreme scenarios is not low, but today is outside our base scenario.”

The $200 billion economy is starting to see growth slow to rates approaching its 5 percent long-term trend, Vergara said. Gross domestic product will expand as much as 6.75 percent in 2011 after recovering from last year’s 8.8-magnitude earthquake and the 2009 recession, moderating to a range of 4.25 percent to 5.25 percent in 2012, he said.

Chilean borrowing costs of 5.25 percent are consistent with keeping inflation around the central bank target of 3 percent, he said. The central bank in August changed from a “restrictive” to a “neutral” bias by omitting language on raising rates and is willing to take additional steps if the outlook deteriorates, he said.

Policy makers will reduce the benchmark rate to 5 percent in December after keeping it on hold for a fifth straight month in November, according to the median estimate of 60 economists in an Oct. 11 central bank survey. The bank will cut borrowing costs to 4.75 percent by March and 4.5 percent by September, which would be its lowest level since April 2011, according to the poll.

The peso weakened 0.9 percent to 504.05 per dollar at 12:00 p.m. New York time from 499.76 on Oct. 14.

--Editors: Philip Sanders, Robert Jameson

To contact the reporters on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net; Randall Woods in Santiago at rwoods13@bloomberg.net

To contact the editor responsible for this story: Philip Sanders at psanders@bloomberg.net


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