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Chile Minutes Stress ‘Opposite’ Global and Domestic Forces

Chilean policy makers didn’t consider changing their key interest rate this month as inflation slowed down and economic growth exceeded expectations, according to the minutes of the meeting.

Central bankers were unanimous in their decision to keep the benchmark rate unchanged at 5 percent. The bank hasn’t moved rates since a surprise quarter-point cut in January as buoyant domestic demand offset the global economic slowdown.

“On one side, the external scenario is pushing in the direction of a slowdown, while the domestic side is pushing in exactly the opposite direction,” policy makers said in the minutes published on the central bank website today.

In its statement accompanying its Aug. 16 decision, the bank said the domestic economy was being buoyed by inventory growth and surging consumer spending. Retail sales grew 7.9 percent in July from a year earlier, the National Statistics Agency said yesterday, while unemployment has held near a record low since December.

“Risks from the external scenario seemed to be quite well offset by those arising from the internal scenario, reinforcing the idea of pausing,” policy makers said in the minutes.

The bank ruled out a cut last month because of the labor market had tightened, which creates a risk of inflation in the medium term, it said.


Chile’s joblessness rate unexpectedly fell to 6.5 percent in the three months through July, the National Statistics Institute said today, close to the 6.4 percent record low reached in February. The median forecast of 15 economists in a Bloomberg survey was that unemployment would be unchanged at 6.6 percent.

A rate cut is unlikely as long as the economy shows no signs of slowing, one policy maker said.

The central bank will publish its quarterly monetary-policy report on Sept. 5, where it will give forecasts for inflation and economic growth.

Policy makers will keep borrowing costs unchanged at 5 percent through December before a temporary cut to 4.75 percent in the first quarter of 2013, according to a central bank survey of traders published on Aug. 22. Traders in the previous survey forecast the key rate would fall to 4.75 percent within six months and then stay at that level through August 2013.

External Risks

“Economic dynamism has been above expectations, but external risks remain and that justifies keeping the rate on hold for the next few months,” said Cesar Guzman, an economist at Banco Security in Santiago. “Barring a big piece of unexpected news it is difficult to see it changing.”

Annual inflation has decelerated in each of the past five months, from 4.42 percent in February to 2.5 percent in July. The consumer price index has risen just 0.41 percent this year, according to data from the National Statistics Institute.

Traders expect the pace of annual inflation to slow to 1.9 percent in February, before accelerating to 3.25 percent in July, prices in the forwards market for Chile’s inflation-linked accounting unit unidades de fomento show. The central bank targets annual price rises of between 2 percent and 4 percent.

Prices climbed 0.37 percent in August, according to traders in the forwards market.

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