Chile Says Cuts Are Possible as Peru Keeps Key Rate Unchanged

Chile and Peru kept their key interest rates unchanged yesterday as the Andean neighbors weigh whether new stimulus measures are needed to stave off an economic deceleration.

Policy makers in Chile, led by bank President Rodrigo Vergara, held the benchmark rate at 5 percent for the 20th straight meeting as forecast by 15 of 19 economists surveyed by Bloomberg. Four analysts estimated a quarter-point reduction. Peru’s five-member board, led by bank President Julio Velarde, kept borrowing costs at 4.25 percent for a 28th month, matching the forecasts of all 15 economists surveyed by Bloomberg.

South America’s two largest copper producers are forecast to post the fastest expansion among major economies in the region this year even as weaker demand for exports threatens to eat away at growth and investment. Chilean policy makers signaled in the statement accompanying yesterday’s decision they may cut if a slowdown in output takes hold.

“The identifiable trigger for them to move is a sure sign that consumption is moderating,” Luis Arcentales, an economist at Morgan Stanley in New York, said by phone about Chile after yesterday’s decision.

Peru’s economy will expand 5.5 percent this year after climbing 6.3 percent in 2012 while Chile’s will expand 4.35 percent following 5.6 percent growth last year, according to analysts polled by Bloomberg. Latin America as a whole will expand 2.57 percent in 2013, the survey shows.

Lower Estimates

Chilean policy makers in their quarterly Monetary Policy Report published last week reduced their 2013 economic growth estimate to a range of 4 percent to 4.5 percent from 4 percent to 5 percent as they cut their outlook for global expansion.

Gross domestic product growth eased to 4.5 percent in the first quarter and 4.1 percent in the second after climbing 5.6 percent in 2012 from the previous year. The government’s monthly manufacturing index has contracted three times this year.

Inflation accelerated in the past three months to 2.2 percent in August, which is still shy of the central bank board’s 3 percent target. Consumer prices will climb 2.6 percent at the end of this year and 2.8 percent in December 2014, according to their forecasts.

“The consolidation of the trends outlined in the last Monetary Policy Report could call for adjustments to the monetary policy interest rate in the coming months,” according to yesterday’s statement.

Export Decline

In Peru, economic growth has lagged economists’ estimates in six of the past seven months as this year’s 12 percent decline in copper prices damps business sentiment. Exports fell 19.5 percent in July from a year earlier while imports climbed 1 percent, leaving a record $486 million trade gap.

Policy makers have cut their 2013 expansion forecast to 5.8 percent from 6.1 percent and in a statement accompanying yesterday’s decision said they will reduce reserve requirements if needed. The central bank in August said it would lower the ceiling for average reserve requirements by two percentage points.

Inflation will ease in September after breaching the central bank’s 1 percent to 3 percent target range in the past two months, policy makers wrote yesterday. Reduced consumer price pressures would allow the bank to continue cutting reserve requirements, HSBC Holdings Plc said in a Sept 9 report.

“We expect slower growth to tame inflation over the coming months and allow the central bank to keep rates on hold for the rest of this year,” said David Rees, an analyst at Capital Economics Ltd in London.

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