Chile and Peru yesterday opted against following the lead set by nations from Brazil to South Korea in cutting interest rates as economic growth and slowing inflation in the Andean neighbors gave central bankers little reason to change monetary policy.
Policy makers in Chile kept borrowing costs at 5 percent for the sixth straight month, while their counterparts in Peru held their overnight rate at 4.25 percent for a 14th consecutive meeting, matchingthe median estimates in Bloomberg surveys of economists.
The two economies will be among the world’s fastest growing in 2012 while also posting some of Latin America’s lowest inflation rates, according to International Monetary Fund forecasts. Yesterday’s decisions balanced the respective risks posed to consumer prices and growth by expanding domestic demand and a global deceleration, economist Pedro Tuesta said.
“Chile has a better argument for holding in the sense that inflation has come down to the center of its target,” Tuesta, senior Latin America economist at 4Cast Inc. in New York, said by telephone. “But both of them mentioned that the weakness of the global economy adds uncertainty to the market, so they are holding rates because of that.”
Chile and Peru have shown few signs of contagion from Europe, as gross domestic product will expand 4.3 percent and 5.5 percent respectively this year and surpass the 3.7 percent average growth rate for the region, the Washington-based IMF said in its latest forecasts. The global economy will expand 3.5 percent, according to the multilateral lender.
Inflation will average 3.8 percent in Chile and 3.3 percent in Peru, compared with 6.4 percent for Latin America, the IMF said.
Consumer prices in Chile eased to a 16-month low of 2.7 percent in June from a year earlier, compared to the nine-month low of 4 percent posted in Peru. Chile’s central bank targets annual inflation of 2 percent to 4 percent, while Peru’s bank targets 1 percent to 3 percent.
Brazil’s economy, which is Latin America’s largest, will fall short of the global and regional average in posting 3 percent growth in 2012, according to the IMF. Brazilian industrial output fell in May for a third month and retail sales fell by the most in more than three years.
Policy makers in Brazil on July 11 led by President Alexandre Tombini lowered benchmark borrowing costs by 50 basis points to a record 8 percent, to revive economic growth. They have lowered rates 4.5 percentage points since August, the most among Group of 20 nations.
The Bank of Korea also on July 11 unexpectedly cut borrowing costs for the first time in more than three years, joining an international push for monetary stimulus as Europe’s debt crisis threatens to undermine global growth.
While the Bank of Korea yesterday reduced its 2012 economic-growth forecast for the second time this year, the most recent quarterly growth reports in the two Andean economies support the IMF’s gross domestic product forecasts for 2012.
GDP in Chile, the world’s largest copper producer, expanded 5.6 percent in the first quarter from last year, which Peru outpaced with a 6 percent expansion in the same period, the fastest growth among Latin America’s seven biggest economies.
Growth in Brazil, the world’s second-biggest emerging market after China, decelerated to 0.8 percent in the same period, the slowest rate among Latin America’s seven biggest economies.
With more than half of their export revenue coming from commodities, Chile and Peru also are vulnerable to a deterioration of the euro region’s sovereign-debt crisis and China’s economic deceleration.
Commodity prices have fallen 8.4 percent since the end of February, according to the Bloomberg commodity index, which calculates the mean of indexes including energy, grains, food and metals.
Chile in May posted its first trade deficit in nine months on a decline in exports while the government this month cut forecasts for 2012 economic growth and copper prices.
“Domestically, output and demand indicators, despite decelerating less than expected, are evolving at trend rates,” Chile’s central bank said in a statement accompanying yesterday’s decision.
Chile’s peso has gained 5.2 percent against the dollar in 2012, the second-best performance among the seven major Latin American currencies tracked by Bloomberg after Colombia’s peso, and Peru’s sol is up 2.5 percent.
Peru had a $34 million trade gap in April, its first deficit in three years, which widened to $106 million in May. Year-on-year growth in Peru slowed to 4.4 percent in April, though analysts surveyed by Bloomberg forecast that the statistics agency next week will report a faster pace for May.
“Some current and advanced indicators of activity show economic growth has stabilized around its long-term sustainable level of growth, although indicators linked to the external market show weak performance,” Peru’s central bank said in a statement accompanying yesterday’s decision.