Central Bank of Chile Tightens… Key Interest Rate Now 4.0%

March 18, 2011

The Central Bank of Chile raised its key overnight interest rate by 50 basis points, surprising analysts who’d expected an increase of 25 basis points.  The central bank has been normalizing policy since mid-June, lifting its key rate from a starting point of 0.5% to 2.5% by September via four hikes of 50 basis points each and then four times by 25 bps apiece to 3.5% by February.  The return to an incremental advance of 50 bps this month brings such to 4.0%, and more tightening is on its way.  A statement released late Thursday concludes, “The Board reiterates that it will be necessary to continue to reduce the monetary stimulus in the coming months. The pace of this process will depend on the unfolding of domestic and external macroeconomic conditions. Accordingly, the Board will continue to use its policies with flexibility so that projected inflation stands at 3% over the policy horizon.”  Chilean GDP is expected to climb at least 5% both this year and next, and consumer prices rose 2.7% in the twelve months to January.

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

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