Chile Traders See Key Rate Left Unchanged for Seventh Month

Chilean traders and investors expect policy makers to leave the benchmark interest rate unchanged at 5 percent for a seventh straight month in August as inflation remains below the central bank target.

Traders forecast policy makers will reduce borrowing costs to 4.75 percent by November and 4.5 percent by February, according to the bi-weekly survey posted on the central bank website today. Traders in the July 10 survey estimated the key rate would fall to 4.75 percent by October.

Policy makers have kept rates unchanged since a surprise reduction in January as they monitor the impact Europe’s debt crisis and China’s slowdown will have on Chile’s inflation and growth. Any change in policy probably will hinge on events abroad, former central bank President Vittorio Corbo, now a researcher with Santiago-based polling company CEP, wrote.

“If risks from the external sector materialize, it’s most probable the central bank in coming months will start to reduce the monetary policy rate,” Corbo wrote in a report e-mailed on July 24. “However, it’s most probable the central bank will remain cautious for some months given that production is around potential and the labor market remains very tight.”

Chile’s peso appreciated 0.6 percent to 491.9 per U.S. dollar at 8:37 a.m. in Santiago. The peso will trade at 495 per dollar in three months, according to today’s survey.

Chile’s inflation rate has declined in the past four months, reaching 2.7 percent in June, below the central bank target of 3 percent. Traders estimated inflation will reach 2.5 percent in 12 months, matching forecasts from the previous survey.

Economic growth in the world’s top copper producer was 5.6 percent in the first quarter, the fastest expansion since the three months through June 2011. The unemployment rate was 6.7 percent in the three months through May, down from 7.2 percent in the year-ago period.

Chile’s economic growth will ease this year, with gross domestic product climbing 4 percent to 5 percent, according to Corbo, who led the central bank from 2003 to 2007.

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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