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.
Friday, February 8, 2008
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.
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.
Thursday, January 31, 2008
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.
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.
"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.
Chile Industrial Output December 2007
Chilean industrial production rose 3.4 percent in December from 4.2 percent in November, the country's National Statistics Institute said today in a statement. Industrial sales rose 4.6 percent from a year earlier, the institute said.
Wednesday, January 23, 2008
Chile Is Riding The Storm!
Chile's peso gained the most in a week yesterday after the Federal Reserve lowered its benchmark U.S. interest rate. The Fed lowered the overnight rate 0.75 percentage point to 3.5 percent, widening the spread with Chile's 6.25 percent key rate to 2.75 percentage points. This is the biggest difference since 2002.
The rate cut is obviously going to translate itself into increasing appreciative forces in a number of emerging currency markets, among them the Chilean peso one. Indeed, if I had to list half a dozen emerging markets I thought would weather the storm better than others, Chile would definitely be there, as probably would Brzil (in Lat Am), Morocco and Turkey on Europe's southern fringe, and Thailand and India in Asia.
As if to confirm my intuitions Chile's peso advanced the most yesterday since Jan. 11, rising 1.4 percent to 478.64 per dollar at 2:33 p.m. in New York, and extending its advance so far this year to 4.3 percent. The yield on Chile's 8 percent bonds due June 2015 was little changed at 6.64 percent, according to Deutsche Bank Chile.
Concern that a slowdown in the U.S. economy will hurt demand for Latin American exports has put a certain restraint on gains in the region's currencies, and we are now about to see just how much "decoupling" has taken place in this particular corner of the globe.
All of this is reflected in the very upbeat tone adopted by Chile's Finance Minister Andres Velasco, who is quoted by Bloomberg as saying that yesterday's decision by the U.S. Federal Reserve to cut its benchmark interest rate was a "good signal" for markets. Velasco asserted that Chile is well-prepared to deal with the coming international crisis, since the government of the country which is the world's biggest copper exporter has used revenue from record prices for the metal to pay down debt and accumulate a fiscal surplus of $19 billion.
According to Velasco Chile's government hasn't yet discussed cutting its target for budget surpluses. Senators from the ruling coalition were reported by local newspaper La Tercera to have called yesterday for the government to aim for a balanced budget, instead of an excess of 0.5 percent of gross domestic product. This move seems sensible, given the strong downside risk which exists at this point.
Chile's central bank raised its benchmark lending rate to the highest in six years earlier this month as it seeks to curb the fastest inflation in a decade. Policy makers raised the benchmark rate a quarter point to 6.25 percent.The bank acted in response to inflation that climbed to an annual rate of 7.8 percent in December, driven by higher costs for food and transportation.
In the short term Chile's inflation problem may well get worse before it gets better, but as external conditions steadily change I doubt this will be the main threat to Chile's economic stability, so some counter-cyclical internal demand management in advance of any coming shock would seem to me to be a pretty prudent move.
The rate cut is obviously going to translate itself into increasing appreciative forces in a number of emerging currency markets, among them the Chilean peso one. Indeed, if I had to list half a dozen emerging markets I thought would weather the storm better than others, Chile would definitely be there, as probably would Brzil (in Lat Am), Morocco and Turkey on Europe's southern fringe, and Thailand and India in Asia.
As if to confirm my intuitions Chile's peso advanced the most yesterday since Jan. 11, rising 1.4 percent to 478.64 per dollar at 2:33 p.m. in New York, and extending its advance so far this year to 4.3 percent. The yield on Chile's 8 percent bonds due June 2015 was little changed at 6.64 percent, according to Deutsche Bank Chile.
Concern that a slowdown in the U.S. economy will hurt demand for Latin American exports has put a certain restraint on gains in the region's currencies, and we are now about to see just how much "decoupling" has taken place in this particular corner of the globe.
All of this is reflected in the very upbeat tone adopted by Chile's Finance Minister Andres Velasco, who is quoted by Bloomberg as saying that yesterday's decision by the U.S. Federal Reserve to cut its benchmark interest rate was a "good signal" for markets. Velasco asserted that Chile is well-prepared to deal with the coming international crisis, since the government of the country which is the world's biggest copper exporter has used revenue from record prices for the metal to pay down debt and accumulate a fiscal surplus of $19 billion.
``The other day an investor remarked that when the tide goes out you see who's got their swimming suit on properly,'' Velasco said. ``I have no doubt that in this low tide, Chile will be seen to be very well-prepared and very well-dressed for whatever comes,'' The Fed's cut ``will contribute to the return of calm,'' the finance minister said, ``But there are no magic solutions. The world is living through, and will probably keep living through, a period of international volatility. We have to be very calm and very alert. In previous years we've saved, we've reduced debt, we've had a surplus, we've strengthened public and private finances,'' Velasco said. ``Sometimes people asked why we were doing all this, well now we see the answer and we see it very clearly.''
According to Velasco Chile's government hasn't yet discussed cutting its target for budget surpluses. Senators from the ruling coalition were reported by local newspaper La Tercera to have called yesterday for the government to aim for a balanced budget, instead of an excess of 0.5 percent of gross domestic product. This move seems sensible, given the strong downside risk which exists at this point.
Chile's central bank raised its benchmark lending rate to the highest in six years earlier this month as it seeks to curb the fastest inflation in a decade. Policy makers raised the benchmark rate a quarter point to 6.25 percent.The bank acted in response to inflation that climbed to an annual rate of 7.8 percent in December, driven by higher costs for food and transportation.
In the short term Chile's inflation problem may well get worse before it gets better, but as external conditions steadily change I doubt this will be the main threat to Chile's economic stability, so some counter-cyclical internal demand management in advance of any coming shock would seem to me to be a pretty prudent move.
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