Faster-Than-Expected Chile Inflation Boosts Rate Increase Bets

  • One-year swap rate climb to highest level since May 2014
  • Consumer prices increase more than economists forecast

Chile’s swap rates jumped on wagers policy makers will increase borrowing costs next week amid a faster-than-expected increase in consumer prices and economic growth.

1-month implied interest rates jump on inflation data
1-month implied interest rates jump on inflation data

Chile’s national statistics institute reported Friday that inflation was 4 percent in October, exceeding the average estimate of 3.9 percent among economists surveyed by Bloomberg. Last month, the central bank raised interest rates for the first time since June 2011 as the 14 percent drop in the currency this year increases import costs. The economy expanded at an annual rate of 2.6 percent in September, more than economists forecast, according to a monthly proxy for gross domestic product released Thursday.

"The local data show that the central bank should raise rates next week," Sebastian Ide, a trader at Banco de Chile, said from Santiago.

The one-year swap rate rose 6 basis points, or 0.06 percentage point, Friday to 3.82 percent at 12:32 p.m. in New York, its highest level since May 2014, while the two-year swap rate increased six basis points to 3.98 percent. The implied one-month interest rate, which measures where traders expect rates to be in 30 days, rose 6 basis points to 3.5 percent and has increased 16 basis points this week.

Chile’s central bank is scheduled to announce its decision on Oct. 12. Seven of eight economists surveyed predict the rate will remain unchanged at 3.25 percent, with one seeing a move to 3.5 percent, according to data compiled by Bloomberg.

The Chilean peso weakened 0.7 percent Friday to 699.56 per dollar as emerging-market currencies headed for a one-month low amid speculation that better-than-estimated U.S. job gains will trigger the countdown for a December liftoff of U.S. interest rates.

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