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Tuesday, August 26, 2008

Chile's Economy Accelerates in Q2 2008

Chile's economy expanded faster than expected in the second quarter, indicating that the central bank may well feel more comfortable raising interest rates in order to slow inflation further. Chile's GDP grew by 4.3 percent in the second quarter, up from a revised 3.3 percent in the first quarter, according to data out today from the Santiago-based central bank.

The faster-than-expected growth was driven by an 11 percent increase in domestic demand, suggesting policy makers have room to raise interest rates further without bringing the economy grinding to a halt. The central bank has raised its overnight rate by 1.25 percentage points to a nine-year high of 7.75 percent this year in an effort to bring down the highest inflation rate since 1994. The central bank raised interest rates by half a percentage point at each of its last two monthly meetings, and most economists now feel there will be a quarter-point increase at its Sept. 4 meeting.

Private consumption grew 5.9 percent in the second quarter, as Chileans spent 15 percent more, in real terms, on durable goods. Fixed capital, or assets, expanded 23 percent from a year earlier in the second quarter, led by investment in machinery and equipment.

Chile companies are set to invest more than $57 billion, about a third of the country's annual gross domestic product, by the end of 2012, according to recent statements by Finance Minister Andres Velasco.

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