Central Bank of Chile Maintains 3.25% Monetary Policy Rate

January 13, 2011

Chile’s central bank ended a string of seven consecutive monthly interest rate hikes totaling 275 basis points to 3.25%.  Some analysts had projected an eighth consecutive increase after news earlier this month that CPI inflation in Chile reached 3.0% last year, matching the upper target limit.  However, officials have become increasingly worried about commodity-fueled peso appreciation and have instituted a program of foreign currency buying to contain upward pressure.  Raising rates could have undermined the intent of that program.  Nonetheless, a new statement from the Central Bank of Chile asserts “that it will be necessary to continue to reduce the monetary stimulus in the coming months, in line with the last Report. The pace of this process will depend on the unfolding of domestic and external macroeconomic conditions.”  Amid rising expected inflation and growth that should hover near 6% in 2011, there is little alternative to this bias.  This month’s decision not to raise rates is not the final chapter.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.

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