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Friday, September 5, 2008

Chile Central Bank Raises Interest Rate

Chile's central bank raised its target interest rate to 8.25 percent, the highest in almost a decade, as policy makers show their determination to win the fight against inflation. The bank's five-member board, led by President Jose De Gregorio, is trying to contain consumer price increases that are triple its target. The bank said today that the speed of further rate increases depends on economic statistics, dropping a clause from last month's statement that said raising the rate is the ``most likely'' scenario.

``The future course of the policy rate foresees further adjustments to ensure that inflation converges with the target, at a rhythm that will depend on new information gathered and on its implications for projected inflation,'' the bank said in its statement.

Inflation last month was within expectations, the bank said. Core inflation, which excludes food and fuel, remains high, confirming that price increases have spread through the economy more quickly than policy makers expected a few months ago, the bank said. The bank indicated that it felt that domestic demand is still growing strongly.

Inflation reached a 13-year high of 9.5 percent in July. It eased in August to an annual rate of 9.3 percent, more than triple the bank's target of 3 percent. The bank has raised interest rates by 6.5 percentage points in the past four years and 2.75 percentage points in the past 12 months. So far the rate increases haven't slowed Chile's economy, which expanded 6.25 percent in the 12 months to July, the fastest pace since March 2007.

The bank also stated that the data they had suggested the economy will grow faster in the second half of the year  than it did in the first. The bank is due to announce new projections for growth and inflation on Sept. 11.

Annual core inflation, which excludes fuel and perishable food, was 9 percent in August -  the fastest since the institute started tracking the figures -  and this was for the second month in a row.