Chile's Central Bank to Raise Interest Rate to 3% Next Month, Survey Shows

Chile’s central bank will increase its benchmark interest rate by a half-point for the fifth straight month in October, according to a bi-weekly survey published today on the central bank website.

Policy makers will raise the rate to 3 percent in October, 4.25 percent in six months and 5 percent in a year, according to the median estimate of 39 traders and investors. Consumer prices will rise 0.35 percent in September from August and 3.2 percent in 12 months, the survey said.

The central bank increased interest rates by a half-point last week, saying in a statement accompanying its decision that it would continue to remove monetary stimulus at a pace determined by economic conditions.

Chile’s economy is set to exceed 5 percent growth this year and possibly 6 percent in 2011, President Sebastian Pinera, a Harvard-trained economist, said in a Sept. 20 interview on national television.

The economy grew 1.5 percent in the first quarter this year, 6.5 percent in the three months through June and a faster- than-estimated 7.1 percent in July.

Chile’s peso will trade at 495 per U.S. dollar in seven days, appreciating to 490 in three months and weakening to 505 at the end of next year, according to the survey. The currency climbed 0.5 percent to 494.95 at 9:11 a.m. New York time from 497.55 yesterday.

‘Dynamic’ Economy

“The monetary adjustments continue to justify themselves because of highly dynamic economic activity, internal demand and the labor market,” Aldo Lema and Cesar Guzman, economists at Inversiones Security, said in a Sept. 21 e-mailed report. “As a result, the economy has closed gaps faster than expected.”

The gap between actual gross domestic output and potential GDP could close next year, putting pressure on consumer prices, central bank President Jose De Gregorio said in a Sept. 12 interview in Basel, Switzerland.

“Our measure of the output gap, which is current output minus full capacity output, is about 1 percent,” he said. “It was much bigger before the earthquake.”

Chile’s unemployment rate fell to 8.3 percent in the three months through July from 9.7 percent at the beginning of the year. The rate will fall further to 8.1 percent in the three months through August, according to the median of three economists in a Bloomberg survey. Chile’s statistics institute will publish August unemployment data next week.

Consumer prices fell 0.1 percent in August from July. Annual inflation rates increased to 2.6 percent in August from 2.3 percent in July, according to Bloomberg data. The central bank targets annual inflation of 3 percent.

To contact the reporter on this story: Randy Woods in Santiago at rwoods13@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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