Chilean Central Bank Signals Rate Hike Very Near

May 13, 2010

The Central Bank of Chile’s monetary policy interest rate has been only 0.5% since July 2009.  It fell by 775 basis points via seven consecutive reductions after meetings between January and July of last year.  After leaving the rate unchanged on Thursday, officials released a statement that asserted “the Board considers the time to begin monetary policy normalization is approaching.”  Barring an unforeseen event that stops the presses, such a statement implies a hike next month.  While officials concede that the February 26th earthquake’s impact was greater than estimated earlier, they also note that growth has been stronger than assumed, lending conditions are improving and unemployment is dropping.  At 0.5%, policy does not need evidence of rising inflation to be made less accommodative.  In fact, inflation has been lower than forecast, and measures of expected Chilean inflation continue to be contained and in line with the central bank’s objective.  A near-term rise in rates is merely return to normal for an economy whose GDP growth is back hovering around 5%.

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



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