Chilean traders and investors expect the benchmark interest rate to be left unchanged at 5 percent for the next two years as inflation expectations remain anchored to the central bank target.
Policy makers last changed borrowing costs in January when they made a quarter-point reduction that surprised economists. Traders and investors forecast annual inflation of 2.9 percent in a year and 3 percent in two years, according to the bi-weekly survey posted on the central bank website today.
Since the previous poll was published, policy makers have shown an increased willingness to eventually tighten monetary policy, Santiago-based financial services company Celfin Capital SA said in an Oct. 22 note e-mailed to investors. Over the past month, economic growth exceeded estimates made by economists as manufacturing rose and unemployment dropped.
“The central bank has become more hawkish and is unlikely to consider reducing the base rate anytime soon,” according to the Celfin note. “If the U.S. dollar does not continue to fall in the next few months -- our base case scenario -- and if domestic demand remains robust, the board could become more biased toward tightening.”
The peso, which has gained 7.8 percent against the dollar this year, gained 0.1 percent to 482.11 per dollar at 8:43 a.m. Santiago time. The peso will trade at 480 in three months, according to today’s survey.
Policy makers target 3 percent inflation, plus or minus 1 percentage point over two years.
Gross domestic product in the Andean nation expanded 5.4 percent in the first half of the year, while growth, as measured by the central bank’s Imacec index, was 5.3 percent in July and 6.2 percent in August, the fastest pace in half a year.
Manufacturing climbed 3.6 percent in August from last year, compared with the 1 percent median estimate of analysts polled by Bloomberg. The unemployment rate fell to 6.4 percent in the three months through August after economists forecast it would remain unchanged at 6.5 percent.
Economists polled monthly by the central bank on Oct. 10 raised economic growth forecasts for this year and next while estimating borrowing costs would increase to 5.25 percent within 23 months. Economists in the previous poll, published Sept. 12, saw no change in borrowing costs over that time-frame.