Bloomberg News

Chile Ruled Out Rate Change on Weak CPI and Growing Demand

March 01, 2013

Chilean policy makers were unanimous in their decision to keep the benchmark interest rate unchanged last month after internal demand showed few signs of slowing and inflation remained below target.

The central bank board, which kept borrowing costs at 5 percent, last changed the rate in January 2012, when it made a quarter-point reduction that surprised economists surveyed by Bloomberg. Policy makers didn’t discuss changing rates in the Feb. 14 meeting, according to the minutes posted on the bank website today.

The central bank board previously considered raising borrowing costs in its May 2012 meeting. It has opted against rate changes for 13 straight months and will continue to do so through December after inflation eased and the economy grew faster than expected last year, according to economists polled by the bank on Feb. 11.

“One board member noted that the balance of risks remained generally unbiased and, therefore, it was difficult to propose any option other than keeping the policy rate flat,” according to the minutes. “However, the relative weight of risks had changed somewhat: local risks had gained importance, at least in the short term.”

Economic growth as measured by the Imacec index, a proxy for gross domestic product, grew 5.6 percent in 2012 from the previous year.

Inflation eased from 4.2 percent at the start of 2012 to 1.5 percent in December, the slowest pace in 2 1/2 years. Policy makers target 3 percent inflation, plus or minus 1 percentage point over 24 months.

Two-year interest-rate swaps, which reflect traders’ views of average borrowing costs, fell five basis points, or 0.05 percentage point, last month to 5.18 percent. That implies interest rates will remain unchanged this year and rise a quarter-point by March 2014, according to Banco de Chile.

To contact the reporter on this story: Randall Woods in Santiago at

To contact the editor responsible for this story: Andre Soliani at

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