Bloomberg News

Chile to Keep Rates on Hold for Fifth Month, Traders Say

October 26, 2011

(Updates with details from central bank survey in second paragraph.)

Oct. 26 (Bloomberg) -- Chilean policy makers will keep the benchmark interest rate on hold for a fifth straight month in November before cutting by a quarter-point to 5 percent by February, according to a central bank survey of traders and investors.

Policy makers led by bank President Jose De Gregorio, who have kept borrowing costs unchanged at 5.25 percent in their past four monthly meetings, will reduce rates to 4.5 percent by May 2012, according to the bi-weekly survey posted on the bank website today.

The central bank will change the “orientation” of monetary policy if the global economy deteriorates further and impacts Chile’s growth and inflation rates, according to a statement accompanying this month’s decision to keep borrowing costs unchanged.

“It is important that, in general, monetary policy doesn’t act late nor in insufficient doses,” De Gregorio told a conference in Santiago last week. “It is also important that it doesn’t act precipitately. Monetary policy that reverses bias because the diagnosis was wrong loses credibility. Potential delays can be compensated for with aggression.”

Three-month interest rate swaps, which reflect traders’ views of average borrowing costs, fell 2 basis point, or 0.02 percentage point, to 5.08 percent at 8:18 a.m. Santiago time.

Annual inflation will decelerate to 2.7 percent in 12 months from 3.3 percent in September, according to today’s survey. Policy makers target annual inflation of 3 percent, plus or minus 1 percentage point over a 24-month horizon.

--With assistance from Matthew Craze, Eduardo Thomson and Javiera Baeza in Santiago. Editors: Philip Sanders, Richard Jarvie

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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