Thursday, March 13, 2014

Chile cuts by 25 bps, to consider possible further cuts

    Chile's central bank cut its policy rate by another 25 basis points to 4.0 percent, as expected, and said it "will consider the possibility of making additional cuts to the policy rate," signaling that it may be getting closer to ending its easing cycle.
    The Central Bank of Chile, which has cut its rate by 100 basis points since embarking on an easing cycle in October last year, said that it would consider additional cuts in line with the evolution of domestic and external economic conditions and how they impact the outlook for inflation.
    "The Chilean economy has continued to lose strength," the bank said, adding that domestic output and demand had grown less than forecast, particularly in investment-related sectors.
    Chile's Gross Domestic Product expanded by 1.3 percent in the third quarter of 2013 for annual growth of 4.7 percent, up from 4.0 percent in the second quarter.
    But in January the unemployment rate jumped to 6.12 percent from 5.67 percent in December.
    At the same time, inflation continued to accelerate in February, hitting 3.2 percent and continuing the rise since a 2013-low of 0.9 percent in May.

    The rise in inflation reflected higher cost of food and fuel along with the depreciation of the peso.
     Chile's peso started depreciating in May last year, along with many other emerging market currencies, and has continued falling this year. In 2013 it lost 8.8 percent against the U.S. dollar and this year it has lost another 8 percent, trading at 570.9 to the dollar earlier today.
    The central bank said recent developments in China had a negative impact on the prices of copper and metals - Chile is the world's largest copper exporter - and agricultural prices had picked up recently while fuels were close to where they were a month ago.



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