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Chile Traders Forecast Rate Cut in 3 Months as CPI Eases

Chilean traders and investors forecast policy makers will reduce their benchmark interest rate within three months on easing inflation, according to a survey posted on the central bank website today.

Policy makers led by bank President Rodrigo Vergara will keep rates unchanged at 5 percent for a sixth straight month in July before cutting to 4.75 percent by October, according to the survey. The bank is working under the assumption that rates will remain steady in the short term, Vergara said June 18.

Policy makers this month reduced their 2012 inflation forecast to 2.7 percent from 3.5 percent in April on declining commodity prices. Traders and investors in today’s survey estimate inflation will slow to 2.7 percent in a year from 3.1 percent in May.

“Inflation has been lower than expected which, taken together with the fall in international fuel prices, has reduced the risks of its growth in the short term,” Vergara said in a speech before the Senate Finance Committee. “However, medium-term inflationary risks remain dormant because of tight internal market conditions.”

Chile’s peso strengthened 0.2 percent to 507.43 per U.S. dollar at 8:35 a.m. Santiago time from 508.64 yesterday. The peso will trade at 510 in seven days, according to today’s survey of 58 traders and investors.

The world’s top copper producer has shown mixed signs of growth this year. Gains in the Imacec index, a proxy for gross domestic product, slowed in March and April while unemployment dropped to 6.5 percent in the three months through April from 7 percent in the same period last year.

“The growth rate for activity and internal demand has diminished, but at a slower speed than expected,” Vergara said. A “renewal of a more dynamic trajectory for activity could increase pressure that leads to an acceleration of inflation that requires a monetary policy response.”

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