Policy Makers See Chile Rate Flat on Lower CPI, Faster GrowthRandall Woods
Chile’s central bank board indicated the benchmark interest rate will remain unchanged for at least six months as policy makers reduced their inflation forecasts and raised economic growth estimates.
The bank’s board lowered its 2013 inflation forecast to 2.8 percent from 2.9 percent, while boosting its economic growth estimate to a range of 4.5 percent to 5.5 percent from 4.25 percent to 5.25 percent, according to the quarterly monetary policy report published today.
The board, led by bank President Rodrigo Vergara, changed its 2013 estimates after the inflation rate fell more than forecast last year, dropping to the lowest level in Latin America, while the economy expanded more than estimated by policy makers. The conflicting pressures of slow inflation and surging internal demand leave it little space to change borrowing costs.
“The opposing forces that monetary policy has faced remain present,” Vergara said in prepared remarks to the Senate today. “The base scenario is based on a working supposition that the monetary policy rate will continue a path that is similar to the one indicated in current surveys.”
Traders and investors polled by the central bank on March 26 forecast the benchmark interest rate will remain unchanged at 5 percent through at least October before rising to 5.25 percent by April 2014. Borrowing costs have stayed at 5 percent for 14 straight monthly meetings.
Since quarterly estimates were last published Dec. 18, economic growth has exceeded estimates made by analysts for three straight months, while consumer prices have risen less than forecast twice.
The economy expanded 5.6 percent last year, exceeding the central bank’s December forecast of 5.5 percent, while unemployment fell to 6.2 percent in the three months through February from 6.4 percent in the year-ago period.
Internal demand and investment will drive growth this year, expanding 6.1 percent and 7.2 percent respectively, according to the report. The price of copper, which accounts for more than half of exports, will ease to $3.50 a pound this year from $3.61 a pound in 2012, it said.
Inflation eased to 1.3 percent in February, the slowest pace since June 2010. Policy makers forecast inflation will accelerate to 3 percent in 2014. The board targets 3 percent inflation plus or minus 1 percentage point over two years.