Another Chilean Monetary Tightening

April 12, 2011

The Central Bank of Chile’s overnight interest rate has been raised by an as-expected 50 basis points to 4.5%.  There has been an increase at ten of the last eleven monthly meetings of the Policy Board.  The exception was in January.  The last two increases have been by 50 basis points, as were the first four hikes.  The others were increases of 25 basis points each.  At the low the key rate was 0.5%, down from the previous cyclical high of 8.25%%.  That drop of 750 basis points was achieved in just seven months from January through July of 2009. 

A short statement from monetary officials observes that inflation of 3.4% in now above the 2-4% target midpoint, that expected inflation is under pressure from the elevation of oil and food prices, and that domestic demand, production and employment are expanding dynamically.  GDP is likely to grow more than 6% in 2011 and was well above that pace last quarter. The statement ends with the same future rate guidance given a month ago.  There’s a need to continue to withdraw monetary stimulus in the near term.  Another 50 basis points next month sounds about right to me.

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



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