Chile Central Bank Debated Rate Cut as ‘Preventative‘ Step

Chilean policy makers voted unanimously to keep the benchmark interest rate unchanged on Nov. 15 after debating whether to reduce borrowing costs by a quarter point, minutes of the meeting published today showed.

All 16 economists surveyed by Bloomberg forecast rates would be left at 5.25 percent -- the highest since January 2009. Policy makers, who have kept the rate unchanged in their past five monthly meetings, said reducing borrowing costs would have been a “preventative” step as the global economy slows, according to the minutes posted on the bank web site.

At 5.25 percent, Chile has the second-highest borrowing costs behind Brazil among major Latin American countries that set interest rates. South America’s fifth-largest economy has space to change monetary policy if the global decline slows growth in Chile, central bank President Jose De Gregorio said Nov. 22.

“No matter what scenario we face, the Chilean economy -- and monetary policy in particular -- has the tools, the flexibility and the willingness needed to reduce the costs of a deteriorated external environment,” he said on Nov. 22.

Gross domestic product will expand as much as 6.75 percent this year, which would be the fastest expansion in more than a decade, and 4.25 percent to 5.25 percent in 2012, according to central bank forecasts published in September.

Policy makers may need to revise estimates in light of the global slowdown, De Gregorio said in an interview with Chilean newspaper El Mercurio this weekend. Industrial production fell 0.8 percent in October from the year earlier, the first contraction since the aftermath of a devastating earthquake in February 2010.

To contact the reporter on this story: Randall Woods in Santiago at rwoods13@bloomberg.net; Sebastian Boyd in Santiago at sboyd9@bloomberg.net.

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

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