Traders Bet Chile Policy Makers Turning Dovish on Economic Data

  • Two-year, five-year swaps fall after unemployment rises in May
  • Industrial production in May posts surprise contraction

Traders are paring bets that the Chilean central bank will raise its key monetary policy rate amid signs that the South American country’s economy continues to slow.

Two-year interest rate swaps, an indicator of expectations for future borrowing costs, fell 3 basis points to 3.56 percent Thursday, their lowest since Aug. 18, while five-year swap rates slid 6 basis points to 3.88 percent.

“The central bank has changed its tone to convey that it’s still considering a rate hike, but that it may happen farther ahead in the future,” said Nathan Pincheira, economist at Banchile. “Inflation has been slowing down so the market is pricing in that key interest rates will remain unchanged for a long time.”

Chile’s economy is showing signs of a slowdown after its main export copper fell 17 percent in the past year, and amid declines in investor and consumer confidence. The National Statistics Institute reported Thursday that unemployment in May rose to 6.8 percent, higher than expected. Industrial output shrank 2 percent from a year earlier, while economists were expecting a 1.1 percent expansion.

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