PBOC Says It Adds Short-term Funding to China Money Market
Chilean Rate Swaps Rise on Speculation of Interest-Rate Increase in May
Chilean interest-rate swap rates rose to an 11-month high on speculation the central bank will raise borrowing costs.
The three-month interest-rate swap rate jumped five basis points, or 0.05 percentage point, to 0.85 percent at 2:05 p.m. New York time, the highest level on a closing basis since June 5, 2009, according to Bloomberg prices. The six-month rate rose eight basis points to 1.39 percent.
Minutes from the central bank’s April 15 meeting showed policy makers considered raising the benchmark rate, which they kept at a record low of 0.5 percent since July. The bank last month warned one of the consequences of the Feb. 27 earthquake was accelerating inflation that may need to be controlled by higher rates.
“The minutes made explicit that the bank had considered raising rates in April and that it has increased expectations that the bank may raise the rate in May,” said Aldo Lema, chief economist at Banco Security in Santiago. “We still think the bank will leave the rate unchanged because the minutes didn’t reflect the developments of last week.”
Economic statistics published since the bank’s April 15 meeting show industrial output dropped 17.4 percent in March from a year earlier. The steeper-than-forecast drop led economists to estimate that economic activity had declined year- on-year in March.
The central bank will publish economic activity data for March on May 5.
Inflation forwards indicate prices rose 0.46 percent in April from March, generating annual inflation of 0.75 percent, according to Banco Santander SA prices, the fastest pace since June, yet still below the central bank’s 2 percent to 4 percent target range.
Traders have slashed inflation forecasts in the last three weeks. On April 8, the same forwards implied April monthly inflation of 0.94 percent.
Rising interest-rate swap rates reflect traders’ views that the average interest rate over the life of the contract is likely to be higher than previously estimated.
“This may be a short-term overreaction that wanes when activity data is published on Wednesday and inflation data on Friday,” Lema said.
The Chilean peso appreciated 0.2 percent to 517.85 per dollar, the strongest closing level since April 13, from 518.85 on April 30.
To contact the reporter responsible on this story: Sebastian Boyd in Santiago at firstname.lastname@example.org