Thursday, January 16, 2014

Chile holds rate, but may have to cut in coming months

    Chile's central bank held its policy rate steady at 4.50 percent, as expected, and said the country's economy was continuing to lose strength and it "estimates that in the coming months it might be necessary to increase the monetary stimulus to ensure that projected inflation will stand at 3% in the policy horizon."
     The Central Bank of Chile, which cut its rates by 50 basis points in October and November, added that "any future changes in the monetary policy rate will depend on the implications of domestic and external macroeconomic conditions on the inflationary outlook."
    Chile's inflation rate rose to 3.0 percent in December from 2.4 percent in November, hitting the bank's target for the first time in 20 months.
    The bank said the rise was associated with food and energy prices, which is said were volatile, along with the "short-term incidence of the peso depreciation."
     Inflation expectations remain around the bank's target while the pace of nominal growth in wages has been moderating, the bank said.

     Chile's peso fell sharply in May, along with many other emerging market currencies, then stabilized through mid-October, when it again fell as the central bank cut its rate. Earlier today the peso was trading at 533 to the U.S. dollar, down some 10 percent since the start of 2013 and 7.5 percent since mid-October.
     Output from Chile's economy and demand have growth somewhat less than the central bank assumed in its latest policy report, particularly in investment-related sectors.
     Chile's Gross Domestic Product expanded by 1.3 percent in the third quarter from the second for annual growth of 4.7 percent, up from 4.0 percent.    In its December monetary policy report, the central bank forecast 2014 growth of 3.75 - 4.75 percent while growth for 2013 was projected at 4.2 percent.
    The bank also forecast inflation hitting its 3.0 percent target by the fourth quarter of 2015.



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