Chile's Peso At 10 Year High

Chile's peso climbed to its highest in a decade yesterday on speculation the central bank will raise its benchmark interest rate in a bid to slow inflation, luring money to the country's fixed-income market. The 3.25 percentage-point difference between the Chilean and U.S. benchmark lending rates, at its widest since March 2002, has helped fuel an 11.5 percent increase in the peso this year. That's the biggest gain among a wide group of 26 emerging-market currencies.

The peso rose for an eighth day, strengthening 0.5 percent to 445.23 per dollar at 5:04 p.m. New York time, from 447.42 yesterday. It touched 442.69, its strongest level since February 1998.

Annual inflation accelerated to an 11-year high of 8.1 percent in February, the state statistics agency said yesterday, while a separate central bank report showed the economy expanded 3.4 percent in January.

Policy makers raised the lending rate on Jan. 10 to a six- year high of 6.25 percent in a bid to slow consumer price rises. They next meet on March 13. The central bank targets inflation at between 2 percent and 4 percent

Chile Inflation Febuary 2008

Chile's inflation rate rose to the highest level since 1996 in February, raising expectations that policy makers will increase lending rates to a six-year high when they meet next week. Consumer prices rose 8.1 percent in the year through February, up from 7.5 percent in January, the National Statistics Institute said today. Consumer prices rose in the month from Januaryt by 0.4 percent.



The annual inflation rate has tripled from 2.7 percent last February as the worst drought in over a century devastated crops and gas shortages and low reservoir levels forced generators to burn more expensive fuel. The cost of electricity in Chile surged 20 percent in the month and prices for fresh fruit and vegetables soared.


Prices of tomatoes rose 20 percent while those for potatoes climbed 19 percent in February. On average, fruit and vegetables rose 3.5 percent.

The peso has gained 11 percent against the dollar, and it appears that traders are buying the currency - which climbed 1.4 percent to 448.00 pesos per dollar at 10:16 a.m. New York time yesterday, its highest level since trading at 445.30 on Feb. 20, 1998. - on expectations the central bank will raise the benchmark rate, now at 6.25 percent, for the third time in four months on March 13.

At the same time economic growth is slowing visibly, with the economic activity index increasing only 3.4 percent year on year in January, down from the high of 8.26% hit in March 2007.

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.

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.

Chilean Central Bank Voted Unanimously for January Rate Rise

Chilean central bank policy makers voted unanimously to raise the benchmark lending rate Jan. 10 in a bid to curb the fastest inflation in more than a decade.

"Given the data since the previous meeting, the council considered that the most plausible options on this occasion were to raise the rate by 25 or 50 basis points"

The central bank lifted its target rate a quarter point for the second consecutive month to 6.25 percent after annual inflation climbed to 7.8 percent in December. In a monetary policy report published Jan. 16. the bank's economists cut their expectations for economic growth and said consumer prices would rise on average 7.1 percent this year.

The monetary policy committee next meets Feb. 7.

Jose de Gregorio, who has presided over rate increases at both of his monthly policy-setting meetings as central bank president, warned on Jan. 17 that the target rate may need to rise again.

``Excessive wage growth, unleashed by high recent inflation,'' or signs that inflationary shocks are having a greater-than-expected impact on prices, may lead to further fiscal tightening, the board said, according to the minutes.

The Chilean peso rose to a nine-year high on Jan. 29 as the difference between Chilean and U.S. interest rates widened.