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Chile Traders Cut Expectations for Future Inflation; Peso Falls

March 21 (Bloomberg) -- Lower fuel prices are prompting traders in Chile to temper expectations for inflation, currently at the slowest pace in Latin America.

The one-year breakeven inflation rate fell 10 basis points today to a three-month low of 2.57 percent as of 1:00 p.m. in Santiago. The rate, which is derived from yields on derivatives linked to interest rates, reflects trader expecations for the inflation rate a year from now. In February, inflation registered 1.3 percent.

The lower inflation expectations are spurring speculation that the central bank may be able to delay raising rates to cool the economy, said Sebastian Ide, head of rates trading at Banco de Chile in Santiago.

“If inflation surprises on the downside,” Ide said, “we’ll start seeing the policy rate flat for at least another a year.”

Wholesale prices for premium gasoline in the Santiago region during the week ending March 27 will be 1.6 percent lower than in the prior week, Chile’s state-owned oil refiner said yesterday. West Texas Intermediate crude oil futures fell 0.8 percent today to $92.79 a barrel for May delivery.

Interest-rate traders expect the central bank to maintain its benchmark rate unchanged at 5 percent until at least the end of this year, according to Banco de Chile research. The central bank, headed by Rodrigo Vergara, last changed the rate in January 2012.

The peso strengthened 0.1% today to 472.77 per dollar.

To contact the reporters on this story: Eduardo Thomson in Santiago at; Sebastian Boyd in Santiago at

To contact the editor responsible for this story: David Papadopoulos at

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