Chile raises rate 25 bps and sees further hikes

October 15, 2015

By CentralBankNews.info
    Chile’s central bank raised its monetary policy rate by 25 basis points to 3.25 percent and expects to raise the rate further to ensure that inflation converges to its 3.0 percent target.
    The Central Bank of Chile, which last month said it would “soon” reduce its monetary stimulus to curtail inflation, added the pace of further rate changes would depend on the inflationary outlook.
    Although Chile’s inflation rate of 4.6 percent in September was lower than expected, the central bank said it still expects inflation to remain at high levels while expectations for inflation two years ahead are 3.0 percent.
    Chile’s inflation rate eased to 4.6 percent in September from 5.0 percent in August. The central bank targets inflation at a midpoint of 3.0 percent, plus/minus 1 percentage point.
    The central bank said it would continue “to monitor developments with particular attention,” adding that economic activity in August was lower than expected due to lower mining activity.
    Indicators for demand also remain weak and while confidence improved slightly, it remains at a pessimistic level.
    Earlier this month Rodrigo Vergara, central bank president, said faster-than-expected inflation had spelled an end to the bank’s “ultra expansive” policy in the next few months, but monetary policy will remain expansive as the policy rate will remain below the neutral level of 4.5 to 5.0 percent.
    In September central bank policy makers voted by 3-1 to maintain rates with one member voting to raise the rate by 25 basis points.
    On Sept. 1 the central bank raised its inflation forecast for this year to 4.6 percent from a previous 3.4 percent in its latest quarterly monetary policy report.

    Inflation has been fueled by higher import prices from a depreciation of the peso.
    The peso has been depreciating against the U.S. dollar since the “taper tantrum” in May 2013 but has gained some ground since late August when minutes from its meeting that month showed that board members for the first time since May 2012 considered raising the rate to avoid a rise in inflationary expectations.
    The peso was trading at 674.5 to the U.S. dollar today, down 10 percent this year.

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