Tuesday, February 18, 2014

Chile cuts by 25 bps, further cuts may be necessary

    Chile's central bank cut its policy rate by a further 25 basis points to 4.25 percent, as expected, and said "in 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 cut its rate by 50 basis points in October and November and also said last month that further easing may be necessary in coming months.
    The central said the country's economy had continued to lose strength, with output and demand growing less than the bank had assumed in December, particularly in investment-related sectors.
    But inflation remains in line with the bank's 2-4 percent target range and the peso has depreciated while the pace of nominal wage rises has moderated in recent months.
    Chile's inflation rate eased to 2.8 percent in January from December's 3.0 percent while the peso has risen this month, trading at 547.8 to the U.S. dollar today, up from 562 on Feb. 4. But since the start of the year the peso has depreciated by 4 percent.
    Economic recovery in Chile's trading partners is expected to continue in coming months, based on the U.S. rebound, the central bank said, adding that subdued inflation in these economies means that their monetary policy would normalize slowly.
    However, volatility in emerging markets has risen and oil prices have risen in the last month while copper prices had decreased slightly.
    Chile's Gross Domestic Product expanded by 1.3 percent in the third quarter from the second quarter for annual growth of 4.7 percent, up from 4.0 percent in the previous quarter.
    In its December monetary policy report, the central bank forecast 2014 growth of 3.75 percent to 4.75 percent and estimated 2013 growth of 4.2 percent.



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