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Chile Traders Forecast Faster Pace of Rate Cuts on Lower CPI

Chilean traders and investors forecast a faster pace of interest-rate reductions on estimates inflation rates will continue to fall, according to a central bank survey published today.

Chile’s central bank will keep rates at 5 percent in tomorrow’s meeting of policy makers before cutting to 4.75 percent by October and 4.5 percent by January, according to the bi-weekly survey posted on the bank website. Traders in the June 26 survey forecast rates wouldn’t reach 4.5 percent until July next year.

Chile’s government this week reduced its 2012 inflation and economic growth forecasts as easing commodity prices reduce consumer-price pressures and export revenue in the world’s top copper producer. Traders in today’s poll estimate inflation will be 2.5 percent in a year, compared with 2.7 percent in the previous survey.

“The extremely low (or negative) inflation data that have accumulated in the past four months stem from phenomena that aren’t very transitory like the fall in global fuel values,” CorpResearch analysts including Sebastian Cerda wrote in a July 6 note to investors. “The central bank still has space for a reduction of the monetary policy rate in coming months.”

Chile’s peso was little changed at 492.88 per U.S. dollar at 8:35 a.m. Santiago time from 493.06 at yesterday’s close. The peso will trade at 500 per dollar in three months, according to today’s survey.

Inflation has fallen in the past four months, reaching 2.7 percent in June. Policy makers target 3 percent inflation, plus or minus one percentage point over two years.

Chile’s Budget Office this week updated economic forecasts for 2012, reducing growth estimates to 4.7 percent from the 5 percent projection made in October. The government estimates the year will end with inflation at 2.7 percent, down from its previous forecast of 2.9 percent.

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