Chile Traders See Inflation Anchored to Target for Two Years

Chilean traders and investors expect inflation to stay anchored to the central bank’s 3 percent target for two years, giving policy makers room to refrain from raising borrowing costs until at least August.

The bank’s board, which hasn’t changed the key interest rate since January 2012, will keep lending rates on hold at 5 percent for six months before raising them to 5.25 percent by February 2014, according to the bi-weekly survey of traders and investors posted on the bank website today.

Since the previous survey, inflation has accelerated, economic growth slowed and manufacturing contracted in the Andean nation. Two-year interest rate swaps increased two basis points from Jan. 22 to 5.23 percent yesterday, implying rates will rise a quarter-point by August, according to Banco de Chile.

Economic growth as measured by the Imacec index, a proxy for gross domestic product, grew 4.7 percent in December from the previous year on gains in retail and services, the slowest expansion in nine months, according to central bank data. Manufacturing output contracted 2.5 percent in December.

Inflation will speed up to 3 percent in 12 months after accelerating to 1.6 percent in January from 1.5 percent in December, according to today’s survey of 57 traders and investors. Policy makers target 3 percent inflation, plus or minus 1 percentage point over two years.

The peso rose by less than 0.1 percent to 471.65 per U.S. dollar at 8:41 a.m. Santiago time today. Chile’s currency will trade at 472 in seven days, according to today’s survey.

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