Chile probably will slow the pace of interest-rate increases and may keep borrowing costs on hold in future meetings, said central bank President Jose De Gregorio.
While the bank must continue tightening monetary policy to keep inflation in check, core price data cast doubts on the theory that the economy is overheating, De Gregorio said in a speech delivered today in Santiago.
The central bank has lifted rates in 11 of its past 12 monthly meetings from a record-low 0.5 percent to 5 percent, including a surprise half-point increase at its last meeting. The economy expanded 9.8 percent in the first quarter, the most in 15 years, as consumer spending surged and manufacturing recovered from the biggest earthquake in half a century. There’s market consensus on a rate-increase slowdown, De Gregorio said.
“No scenario can be ruled out,” he said about central bank monetary policy. “It’s probable that in future meetings the magnitude will be lower, and there even could be pauses. At the same time, although the probability today is quite lower, the pace could be maintained if risks grow.”
The timing and size of future increases will depend on domestic and external macroeconomic conditions, he said, adding that global oil and food prices remain an inflationary risk and output gaps in Chile have closed.
Core prices, which exclude fuel and produce, rose 0.3 percent in April from the previous month while annual inflation reached 3.2 percent, down from 3.4 percent a month earlier.
The central bank, which targets annual inflation of 3 percent plus or minus 1 percentage point, estimates consumer prices will grow 4.3 percent in December from last year.
Chile isn’t experiencing unusual capital inflows from a historic perspective, De Gregorio said today. Raising reserve requirements for banks could be a topic for discussion if inflows became a problem, he said.