Two Latin American Central Banks Eased on Thursday

May 8, 2009

The Central Reserve Bank of Peru cut its benchmark policy reference rate by 100 basis points to 4%.  A cut of that size was also done in April following back-to-back smaller reductions of 25 basis points each in February and March.  The cyclical peak of 6.5% was attained last October after an increase that month of 25 basis points, but now inflation, expected inflation, and private spending are all trending lower.  CPI inflation dropped by 2.1 percentage points since end-2008 to 4.6% in April.  A statement from the central bank indicates that further rate cuts are likely if growth and inflation continue to decline.  The next Policy Board meeting is set for June 4th.

The Central Bank of Chile implemented a 50-basis point cut of its key interest rate to 1.25%.  At the start of this year, that rate stood at 8.25%, a peak attained after a 50-bp increase in early September.  Chilean rates were reduced by 100 bps in January, 250 bps each in February and March, and 50 bps each in April and now May.  On-year growth is negative, joblessness is rising, lending remains tight, and inflation is projected to subside further.  Even after cumulative reductions of 700 basis point in the space of four months to an ultra-low rate, Chilean monetary officials, like their Peruvian counterparts, are prepared to reduce rates further according to a press release if that is deemed necessary to secure the central bank’s medium-term inflation target of 3%.

Copyright 2009 Larry Greenberg.

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