Chile Traders Forecast Key Rate Increase by February 2014

Chilean traders and investors expect the central bank to raise interest rates by February next year as the inflation rate doubles, according to a survey published on the central bank website today.

The bank’s board, which hasn’t changed borrowing costs since January 2012, will keep the key rate on hold at 5 percent until at least August before raising it to 5.25 percent by February next year, according to the survey posted on the bank website today. Traders last surveyed on Jan. 7 expected the bank to raise rates to 5.25 percent by January 2014.

Since the past survey, policy makers have cited improved financial conditions abroad as well as easing inflation and a tight labor market at home as justification for keeping rates at 5 percent for 12 straight months. That decision reinforced estimates borrowing costs will remain unchanged, according to BNP Paribas.

“The neutral bias remained unchanged, suggesting that no rate changes are likely near term,” BNP analysts including Florencia Vazquez wrote in a note e-mailed to investors a day after the Jan. 17 rate decision. “This stands in line with our forecast that only pencils in the start of a gradual tightening cycle later in the year.”

The peso, which has gained 4.6 percent in the past six months, rose by less than 0.1 percent to 470.85 per U.S. dollar at 8:42 a.m. Santiago time. Chile’s currency will trade at 471.50 per dollar in seven days, according to the median estimate of 58 analysts in today’s survey.

The economy expanded 1.3 percent in November from the previous month, the fastest pace since the end of 2011.

Still, the inflation rate fell to 1.5 percent in December from 2.1 percent the previous month, dropping below the central bank’s 2 percent to 4 percent target range for the first time since October 2010. Inflation will accelerate to 3 percent in 12 months, according to today’s survey.