Chile Probably Will Hold Rates as Growth Defies Global Slowdown

Chile’s central bank probably will keep its key interest rate unchanged for the ninth straight month today as economic growth in the world’s top copper producer shows little sign of easing amid a global slowdown.

The policy board, led by bank President Rodrigo Vergara, will keep the target overnight rate at 5 percent, according to all 19 analysts surveyed by Bloomberg. The bank will announce its decision after 6:00 p.m. in Santiago.

Economists polled monthly by the central bank last week raised their economic growth estimates for 2012 and 2013, while forecasting an increase in rates in a little less than two years. Policy makers may raise borrowing costs as soon as this year as the economy’s expansion puts pressure on consumer prices, Alfredo Coutino, Latin America director of Moody’s Analytics, said by phone yesterday.

“Inflation by the end of the year is going to be above the central bank target of 3 percent, implying policy makers will have to act preventively,” Coutino said from West Chester, Pennsylvania. “Chile, in addition to Mexico, is the best candidate in the region to move monetary conditions in the opposite direction of the rest of the world.”

Chile has the highest borrowing costs among major rate- setting nations in Latin America behind Brazil, which has cut its benchmark lending rate from 12.5 percent last year to a record-low 7.25 percent. Mexico has kept borrowing costs at 4.5 percent for 29 straight meetings.

Rate Forecasts

Chilean policy makers will keep interest rates unchanged for the remainder of 2012, before raising them by a quarter- point within 23 months, according to the central bank’s Oct. 9 poll of economists. A survey of traders on the same day forecast no change in rates for 24 months.

Two-year interest rate swaps, which reflect traders’ views of average borrowing costs, rose 7 basis points, or 0.07 percentage point, to 4.95 percent yesterday from the end of last month.

“Even with a base scenario showing the monetary policy rate will remain unchanged for the rest of this year and a good part of next, you can’t rule out that when rates must move, they’ll go up, not down,” Alejandro Fernandez, an economist at Santiago-based research company Gemines Consultores, said in a report e-mailed to investors Oct. 16.

Inflation accelerated to 2.8 percent in September, the highest rate in four months, on gains in the price of food and beverages, health care services and transportation.

Economic Growth

Economists in the central bank’s survey raised their 2012 growth estimate to 5.1 percent from 5 percent.

Retail sales surged 11.3 percent in August from last year, the fastest growth seen since February, the National Statistics Institute said in a Sept. 28 report. Consumer confidence has increased for six straight months, Santiago-based polling company Adimark GfK said in a report posted on its website yesterday.

Gross domestic product in the Andean nation expanded 5.4 percent in the first half of the year, while growth as measured by the central bank’s Imacec index was 5.3 percent in July and 6.2 percent in August, the fastest pace in half a year.

Still, the Andean nation is showing some signs that the European recession and the deceleration of growth in China are impacting its economy. Chile in September posted its third consecutive monthly trade deficit and fourth for the year, as exports fell 9.5 percent from the year earlier.

Copper prices have averaged $3.64 a pound so far this year compared with $4.01 a pound in 2011. Prices will fall further in 2013, averaging $3.40 a pound in the year, according to the latest central bank forecasts.

Construction and real estate companies are also experiencing “somewhat” tighter lending conditions, even as corporate and household demand for credit has strengthened, the central bank said in a quarterly survey of lenders published yesterday.

“Chile’s economy has shown quite a bit of vigor, and the effects of the weakened external scenario have been tenuous,” central bank board member Sebastian Claro said in an Oct. 2 presentation posted on the bank’s website. “A weaker external impulse is expected in the future because of lower growth in emerging economies and somewhat less favorable terms of trade.”

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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