50-Basis Point Hike of Chilean Monetary Policy Interest Rate

May 12, 2011

Few central bank interest rates have traced a U-shaped pattern quite as well as Chile’s.  Seven consecutive monthly cuts from January through July of 2009 slashed the rate by 775 basis points to a cyclical low of 0.5% where it remained for eleven months.  Beginning in June 2010, monetary officials have lifted their interest rate in eleven of the last dozen monthly meetings by a total of 450 basis points.  Today’s increase of 50 basis points leaves such at 5.0% and was accompanied by a statement that more increases will be necessary but with other commentary that suggest a shallower upward trajectory from here.  Inflation expectations remain above the 3% target but are subsiding, and commodity prices have fallen back lately.  There are global growth risks as well.  In Chile, however, growth of somewhat over 5% seems probable this year and next.

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



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