Chile Leaves Rates Unchanged as Inflation Stays Above Target

Chile’s central bank kept borrowing costs unchanged for a seventh month after consumer prices rose twice as much as analysts expected in April, while economic growth remains “moderate.”

Policy makers, led by bank President Rodrigo Vergara, left the benchmark interest rate at 3 percent Thursday, as forecast by all 25 economists surveyed by Bloomberg.

Inflation has remained above the 2 percent to 4 percent target range since April last year, while some recent indicators suggest less dynamic economic growth “in the margin,” the central bank said in a statement accompanying the rate decision. With prices rising more than forecast in April, policy makers said they will continue to monitor inflation with “special attention.”

“The central bank is saying that things are worse than they thought” in March, said Cesar Guzman, an economist at Banco Security in Santiago. “The rate will stay at 3 percent for a long time, more than what is priced in, because the economy will continue to be weak and inflation will ease rapidly in coming months.”

Chile’s gross domestic product expanded 1.8 percent in the fourth quarter from the year earlier, compared with 1 percent in the previous three months.

Growth remains sluggish this year. Manufacturing contracted 2.8 percent in March from the year earlier, while retail sales gained 0.4 percent. The central bank will publish first-quarter growth figures on May 18.

Inflation Surprise

“Given that the economy looks poised for a sustained but only gradual recovery, inflation dynamics have been and will continue to be the center of attention,” Iker Cabiedes, an economist at JP Morgan Chase & Co., said before the announcement. “We expect inflation to fall within the target range in coming months.”

Consumer prices rose 0.6 percent in April, leaving annual inflation at 4.1 percent, compared with the 3.9 percent medium estimate of analysts polled by Bloomberg.

A decline in the peso has pushed up import costs while a tight labor market kept wages growing at 7.1 percent in April.

On March 30, policy makers raised their inflation forecast for this year to 3.6 percent from a previous estimate of 2.8 percent and said price growth wouldn´t approach the 3 percent goal until 2016.

Inflation expectations remain anchored for the two years ahead, according to a poll published by the central bank Tuesday.

“Inflation for the two years ahead is more likely to be closer to the 2 percent than 4 percent of the target range,” Guzman said.

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