Bloomberg News

Chile Traders See Rates on Hold in March on Robust Growth

February 22, 2012

(Updates with details of survey in second paragraph.)

Feb. 22 (Bloomberg) -- Chilean traders and investors forecast the central bank will keep its key interest rate on hold in March for the second straight month as inflation estimates increase, according to a central bank survey.

Policy makers last week kept the rate unchanged at 5 percent after unexpectedly reducing borrowing costs in January. Traders raised their 12-month annual inflation forecast in the survey to 3.2 percent from 3.09 percent on Feb. 7, according to the poll published on the central bank website today.

There may still be room for a rate cut later in the year as inflation eases from 4.2 percent in January, according to the poll. That slowdown will be accompanied by a moderation in economic growth, even though the world’s top copper producer has shown little sign of suffering from global financial turmoil to date, Tomas Izquierdo, chief executive officer of research group Gemines Consultores, wrote.

“Contagion in Chile is showing less intensity,” he wrote in a monthly economic report e-mailed on Feb. 16. “Although there still is no clarity about the rate of deceleration in our economy, the mix of expansive fiscal and monetary policies, together with major inertia in private sector growth, will allow for growth this year of about 4 percent.”

The central bank will reduce the benchmark interest rate to 4.75 percent in 12 months, according to today’s poll. Traders in the Feb. 7 poll forecasted a 4.5 percent rate in 12 months. Policy makers estimate gross domestic product will expand as much as 4.75 percent this year from 2011, when it grew an estimated 6.3 percent.

The peso, which was trading at 481.85 per U.S. dollar at 8:36 a.m. in Santiago, will go for 480 in seven days, according to the survey. Chile’s currency has gained 7.8 percent against the dollar so far this year.

Alejandro Fernandez, Guido Romo, Sergio Arancibia and Jose Yanez also are named as authors on the report published by Santiago-based Gemines.

--With assistance from Eduardo Thomson and Matthew Craze in Santiago. Editors: Philip Sanders

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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