Chile Traders Lower Inflation Forecasts as Rates Seen Steady

Chilean traders and investors reduced their inflation estimates today while forecasting the key interest rate would remain unchanged for at least two years.

Traders and investors forecast the benchmark interest rate will remain on hold at 5 percent for at least 24 months, matching estimates they made on Sept. 12, according to the bi-weekly survey published on the central bank website today. Traders lowered their September inflation estimate to 0.55 percent today from 0.6 percent in the previous poll.

Policy makers this month reduced their inflation forecast for the year and raised their outlook for gross domestic product after the economy expanded faster than forecast in the second quarter. As a result, Chile’s central bank board is unlikely to follow its peers in Brazil in cutting rates to stimulate growth, economist Alejandro Fernandez wrote Sept. 24.

“The most likely scenario continues to be a hold at the current 5 percent until the end of the year, and there’s a high probability it will remain at that level until the end of the first quarter of 2013,” Fernandez, an economist at Santiago-based research company Gemines Consultores, wrote in a report e-mailed to customers.

The peso depreciated 0.4 percent at 8:37 a.m. Santiago time to 471.95 per U.S. dollar. Chile’s currency will trade at 474 per dollar in seven days, according to the median estimate of traders and investors in today’s survey.

Growth Forecast

Chile’s central bank in its quarterly monetary policy report, published Sept. 5, raised its 2012 GDP growth forecast to a range of 4.75 percent to 5.25 percent from its previous estimate of 4 percent to 5 percent. GDP increased 5.5 percent in the second quarter from last year, its fastest expansion in a year.

Policy makers, who target 3 percent annual inflation plus or minus one percentage point over two years, also reduced their 2012 inflation estimate to 2.5 percent from 2.7 percent. Traders and investors in today’s survey forecast inflation of 2.9 percent in 12 months, compared with their 3 percent estimate two weeks ago.

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