Chile’s central bank kept its key interest rate unchanged yesterday for a 10th straight month as policy makers highlighted the expanding gap between the strength of the domestic economy and the weakness of the global one.
The bank’s board, led by bank President Rodrigo Vergara, held the benchmark rate at 5 percent, as forecast by all 15 analysts surveyed by Bloomberg. Policy makers last changed borrowing costs in January with a quarter-point reduction that surprised economists.
Monthly economic growth has exceeded economist estimates six times this year as local demand remains resilient to the global slowdown, pushing Chile’s performance past regional peers such as Brazil and Colombia. While policy makers are concerned a global slowdown will eventually hurt gains at home, they may be leaning toward monetary tightening after emphasizing domestic vigor in a statement accompanying yesterday’s decision, economist Jorge Selaive said.
The communique “is somewhat more hawkish,” Selaive, chief economist at Banco de Credito & Inversiones, said by phone from Santiago yesterday. “This will have implications on asset prices, which will incorporate at least two increases in the monetary policy rate” over the next two years.
Chile’s peso rose 0.2 percent to 482.60 per U.S. dollar at 8:32 a.m. local time today.
One-year interest-rate swaps, which reflect traders’ views of average borrowing costs, increased 10 basis points, or 0.10 percentage point, to 5.02 percent yesterday from the end of last month. Economists surveyed this week by the central bank forecast rates would remain on hold for 23 months as inflation stays anchored about the central bank target of 3 percent.
Traders and investors in a separate central bank survey published today estimated rates will remain unchanged for the next two years and that consumer prices will fall 0.1 percent in November.
Annual inflation has accelerated in the past three months, reaching 2.9 percent in October, beating the highest estimate made by analysts in a Bloomberg poll. Policy makers in yesterday attributed October inflation to one-time factors, adding that the pace remains below the 3 percent target.
Chile has the slowest inflation among major Latin American economies. And at 5 percent growth this year, Chile and Venezuela will boast the fastest economic expansion in the region behind Panama and Peru, according to analysts surveyed by Bloomberg. The U.S. economy will climb 2.1 percent in 2012 and the Euro area will contract 0.5 percent, according to the poll.
“Internationally, uncertainty persists about the fiscal and financial situation in the Eurozone, as does the risk of a sharp fiscal adjustment in the United States,” according to the central bank statement. “Domestically, output and demand indicators have evolved above projections. The labor market remains tight.”
Retail sales in the world’s top copper miner grew 8.4 percent in the first nine months of 2012, surpassing economic expansion of 5.4 percent in the period, according to calculations made by Bloomberg based on government and central bank data.
Unemployment declined to 6.5 percent in the third quarter from 7.4 percent in the year-ago period, while real wages increased 3.3 percent in September from last year.
“Consumption, investment, credit and employment are growing at high rates, as well as salaries, which have moderated a little bit in recent months,” central bank board member Joaquin Vial said in an interview last week. “Clearly, it’s all a little bit higher than what would be considered the optimal trajectory.”
Signs of Slowing
The economy is showing some signs of slowing as a global deceleration decreases demand for exports. Manufacturing output dropped 5.6 percent in September from 2011, the steepest decline since the aftermath of the 8.8-magnitude earthquake that struck south-central Chile in 2010.
Chile’s trade surplus narrowed by more than $6.4 billion to $2.9 billion in the first 10 months of 2012 from the year earlier on a 4 percent decline in exports and 6.4 percent gain in imports, according to central bank data. The average price of copper, which accounts for more than half of Chile’s exports, is down 9.4 percent this year from 2011.
The deceleration hasn’t been fast enough to consider monetary easing, Felipe Jaque, an economist at BBVA Research, said by phone from Santiago Nov. 12.
“The market has been adjusting its expectations as estimates for a cut start to disappear,” he said. “If domestic pressures don’t increase, the central bank could perform some increases toward the beginning of 2014.”
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