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Friday, February 8, 2008

Chile Leaves Lending Rate Unchanged at 6.25%

Chile's central bank kept its lending rate unchanged yesterday after inflation eased from the fastest pace in a decade. The bank also signaled that it's prepared to act again in the future if need be to ensure price increases slow.

Policy makers left the benchmark rate at 6.25 percent after two consecutive increases at previous meetings. Stable consumer prices in January and slower economic growth in December left the bank room for a pause today. The central bank last month lifted its benchmark rate to a six-year high after annual inflation in December accelerated to the fastest since 1996.

The bank said further rate increases may be needed to ensure inflation slows to the target of 2 percent-to-4 percent. The annual inflation rate may climb in coming months before it starts to ease, the bank said.

Falling food, clothing and transportation costs helped trim the annual inflation rate in January to 7.5 percent from 7.8 percent in December. Growth in South America's fourth- biggest economy slowed in December as interest-rate increases totaling 1.25 percentage point since July and unsettled global conditions began to bite.

Chilean economists have lowered their 2008 forecasts for consumer prices and economic growth, according to a central bank survey released today. The annual inflation rate will end 2008 at 3.8 percent, compared with the 4 percent forecast in January's survey. Chile's economy will expand 4.6 percent in 2008, compared with the 4.9 percent forecast in last month's survey, according to the report.

Chile, the world's biggest copper producer and exporter, on Jan. 14 announced a $200 million recapitalization of the country's fuel price-stabilization fund to cut consumers' payouts at the pump. The measure led to a 1 percent drop in fuel prices last month.

At the same time, restrictions on electricity production have slowed the economy. Output has been hurt by natural-gas shortages triggered by cutbacks from Argentina and low reservoir levels reducing hydroelectric generation. Chile will cut electricity voltage 10 percent and extend daylight savings until the end of March in a bid to avoid power rationing, Energy Minister Marcelo Tokman said today.

Tuesday, February 5, 2008

Chile Inflation January 2008

Chile's monthly inflation rate was unchanged in January, fueling speculation that policy makers will decide to pause at this week's interest rate meeting and keep the interest rate unchanged at 6.25 percent. Annual inflation slowed to 7.5 percent from 7.8 percent in December, the government-run National Statistics Institute said today in Santiago.

In January, the decline in food prices, clothing and transportation costs kept the consumer price index unchanged, the institute said. Core inflation rate rose 0.4 percent from December, according to the report.

The central bank last month lifted its benchmark rate to a six-year high after annual inflation in December accelerated to the fastest pace in a decade. Today's consumer prices report coupled with a separate report showing that the economy slowed in December may allow the bank to keep rates unchanged at its Feb. 7 meeting.

The central bank separately reported that the economy expanded 3.7 percent in December compared to December 2006.

In their monetary policy report published Jan. 16, the central bank cut their expectations for economic growth and said consumer prices in 2008 would rise on average 7.1 percent. Annual inflation ended 2007 at 7.8 percent, the highest since 1996.

Chile's peso fell the most in two weeks following publication of the GDP and inflation reports, since they served to dampen speculation the central bank will raise borrowing costs this week. The peso dropped 1.3 percent to 472.34 per dollar at 4:20 p.m. New York time yesterday. The peso has gained 5.2 percent so far this year, the biggest advance among a basket of 27 emerging-market currencies.

Nonethless at 6.25 percent Chile's benchmark rate remains 3.25 percent percentage points higher than the benchmark U.S. lending rate, and this is the widest gap since March 2002.