Chile Central Bank Considered Rate Pause in November

Chile’s central bank committee members considered leaving interest rates on hold at their last meeting before voting unanimously on a 25-basis point increase, according to the minutes of the Nov. 16 meeting.

The five-member policy board, led by bank President Jose De Gregorio, raised the rate to 3 percent, matching the forecast of all but two of the 17 economists surveyed by Bloomberg.

Policy makers weighed pausing as inflation had been lower than expected because of prices for imported goods and the appreciating peso, according to a copy of the minutes published today on the central bank website.

“A pause now, contradicting private forecasts, could cause an unwanted revision of the interest rate normalization path,” the bank said. “In any case, the monetary policy rate was still at an expansive level, which meant that it would probably be necessary to keep withdrawing monetary stimulus from the economy at a pace that will depend on the evolution of domestic and external macroeconomic conditions.”

Chile’s peso rose 0.4 percent to 485.45 per dollar at 12:14 p.m. New York time from 487.25 yesterday. The peso gained 0.4 percent last month, the only major Latin American currency to strengthen against the dollar in November.

‘More Hawkish’

The interest rate remained “expansive” and the effects of the rising peso on cooling inflation might be short-lived, the bank said.

Chile’s central bank has raised interest rates in the last six monthly meetings after reducing lending costs to a record low 0.5 percent in July 2009 as the economy contracted. Chile’s economy grew 1.6 percent in the first quarter from a year ago, 6.6 percent in second quarter and 7 percent in the third, according to central bank data.

Chile’s central bank probably will increase rates by a quarter-point this month, Alberto Ramos, an economist with Goldman Sachs Group Inc. in New York, said in a note e-mailed to investors today. Policy makers probably will continue to boost lending costs in the first half of next year, possibly pausing sometime in the second quarter, he said.

“The minutes were more hawkish than expected,” Ramos said. “The monetary policy council still sees significant forward momentum in domestic demand and sees the recent very benign inflation prints as driven to a large extent by non- permanent factors.”

Chile’s benchmark rate is starting to approach levels that allow inflation goals to be met, Santiago-based newspaper La Tercera quoted central bank board member Sebastian Claro as saying Nov. 28. Annual inflation probably will remain close to the central bank’s target of 3 percent next year, he said.

Annual inflation will reach 3.2 percent in 12 months, according to the central bank survey. Consumer prices increased 2 percent in October from a year ago, the National Statistics Institute said in its latest inflation report, published Nov. 8.

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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