Chilean Monetary Policy Rate Left at 0.5%

February 11, 2010

Officials at the Central Bank of Chile made no change in their credit policy stance even thought a 0.5% monthly rise of consumer prices in January exceeded expectations.  The benchmark interest rate has been at 0.5% since a cut of 25 basis points last July 9th, and today’s statement reaffirmed that a rate increase is unlikely until “at least” the second quarter of this year.  The key rate was reduced in each of the first seven months of 2009 from a prior peak of 8.25%.  Cuts in 1Q09 summed to 600 basis points, and reductions of 50 bps were made in every month of 2Q09.  The acceleration of inflation in January was caused by a higher stamp duty on lending, a special factor, and underlying inflation has not accelerated.  On-year inflation in fact remains in the red at minus 1.3% and well below the bank’s target of 3%.  The latest statement does however observe that domestic demand seems to be growing somewhat faster than had been assumed in its December Monetary Policy Report, and that admission suggests that the first interest rate hike is not likely to get delayed beyond next quarter.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.



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