An As-Expected 50-Basis Point Central Bank Rate Hike in Chile

September 16, 2010

The Policy Board of the Central Bank of Chile meets each month and raised its policy rate by 50 basis points for a fourth straight time.  A statement from officials described a need to withdraw the significant stimulus provided during Chile’s recession.  From a peak of 8.25%, the rate plunged 600 basis points in the first quarter of 2009 and was cut by another 150 bps in 2Q09 and by 25 basis points one final time in July 2009 to 0.5%.  At 2.5%, 26% of that stimulus has been reversed so far.  Analysts expect another 50-bp move next month but see the frequency and pace of rise slowing in 2011.  CPI inflation of 2.6% lies below the 3.0% target but is likely to creep toward or even slightly above it.  Chilean real GDP was 6.5% higher in 2Q10 than a year before.

When analysts talk about a two-speed global economy, the faster emerging markets are not only those located in Asia.  Other Latin American central banks that have begun to raise interest rates are in Brazil (up 200 basis points thus far) and Peru (+175 bps).  On-year GDP growth rates in those countries stand at 8.8% and 10.1%.  The IMF’s July World Economic Outlook Update penciled in Latin American growth of 4.8% in 2010 and 4.0% next year.

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



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