Chile Central Bank Was Unanimous on June Rate Decision

Chilean policy makers were unanimous on raising the benchmark interest rate to 5.25 percent from 5 percent at their June 14 meeting, according to the minutes of the meeting published today on the central bank website.

Chile’s central bank on June 14 slowed the pace of rate changes to a quarter-point after three straight months of half- point increases, matching the estimate of 16 of 19 economists surveyed by Bloomberg. Policy makers discussed keeping the rate unchanged at 5 percent during this month’s meeting, according to the minutes.

Policy makers likely will continue to increase lending costs, which are approaching so-called neutral levels that would neither stimulate nor constrict economic growth and consumer prices, bank President Jose De Gregorio said in a paper published June 22 on the central bank website.

“The neutral rate in an open economy doesn’t just depend on internal factors like its long-term growth rate,” he wrote. “The world is going through a period of low interest rates and it’s probable that in the short term the neutral interest rate could be somewhat below what previous estimates indicate.”

Neutral rates used to be 5 percent to 6 percent before the U.S. held lending costs near zero percent, central bank board member Enrique Marshall said in a May 27 speech in Santiago.

Interest Rate Swaps

Chile two-year interest rate swaps, which reflect traders’ views of future rate decisions, rose to 5.67 percent at 8:56 a.m. New York time from 5.66 percent yesterday. Two-year breakeven inflation, increased to 3.39 percent from 3.38 percent over the same period.

Chile’s growing labor market could continue to exacerbate consumer price pressures in South America’s fifth-largest economy, the central bank said in its June monetary policy report. The bank targets annual inflation of 3 percent, plus or minus 1 percentage point over 24 months.

“The labor market should be followed with special attention to avert the incubation of inflationary pressures,” according to the report.

Chile’s jobless rate in the three months through May was 7.2 percent, up from 7 percent through April, the National Statistics Institute said in a report today. The median estimate of 14 economists surveyed by Bloomberg was for unemployment to rise to 7.1 percent through May.

To contact the reporter on this story: Randall 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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