Chilean Benchmark Interest Rate of 0.5% Not to Be Kept Much Longer
April 15, 2010
The Central Bank of Chile slashed the key Chilean interest rate from 8.25% at end-2008 to 0.5% seven months later and is now preparing markets for a fairly aggressive rise in rates later this year. Policy remains on hold for now, pending a better assessment of the impact of the devastating earthquake that hit near Santiago on February 27. The central bank projects above-target inflation of 3.7% this year but has been unable to measure prices in the stricken area. Based on available information, consumer prices posted a monthly rise of just 0.1% in March, down from gains of 0.3% in February and 0.5% in January, and the 12-month rate of increase held at just 0.3%. These benign results are considered unrepresentative and unsustainable. In a monetary policy report issued last month, officials warned investors that rates would be ratcheted up faster than then now priced into markets, and a statement from the central bank after today’s meeting did not back away from that view. It looks like the first rate move will probably occur a bit before or around midyear, and that over 200 basis points of rise will be administered within the next twelve months. Reconstruction from earthquake damage will exert a strong growth stimulus in the second half of this year and beyond. Central bank officials have projected a range of economic growth in full-2010 that is entered upon 4.75%.
Copyright Larry Greenberg 2010. All rights reserved. No secondary distribution without express permission.
Tags: Chile
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