Chile Joins Colombia and Peru to Keep Interest Rates on Hold

Chile joined Colombia and Peru in leaving its benchmark interest rate unchanged yesterday as the European debt crisis shows little sign of damping growth or easing price pressures in the world’s top copper producer.

Chile’s five-member policy board, led by Jose De Gregorio in what may be his last meeting as bank president, held the overnight rate at 5.25 percent, as forecast by all 16 economists surveyed by Bloomberg. 

De Gregorio’s term ends Dec. 9 and President Sebastian Pinera has yet to nominate a replacement.

While Brazil has cut rates at each of its past two meetings, Peru, Colombia and now Chile have kept rates unchanged at recent meetings as they gauge the impact of global economic turmoil. 

Chile’s economic growth accelerated in September, while retail sales leaped 9.6 percent and the annual inflation rate rose to a 30-month high in October.

“We don’t interpret the central bank as being in a hurry to reduce the monetary policy rate, and with respect to the previous meeting, it is much further away from doing so,” Jorge Selaive, Santiago-based chief economist at Banco de Credito & Inversiones, said by phone. 

“There are no reasons to think of a reduction in the short term.”

Chile’s peso, the worst-performing emerging-market currency over the past week, slid 0.4 percent to 511.45 per U.S. dollar as of 9:15 a.m. Santiago time.

Rates Outlook

With the second-highest borrowing costs among major Latin American economies that set interest rates, Chile’s central bank has room to stimulate growth if the European debt crisis deteriorates further.

Policy makers will lower the rate to 4.75 percent by April after keeping it at 5.25 percent in December, according to the median estimate of 61 economists in a Nov. 9 central bank survey.

Inflation probably will exceed the central bank’s forecast this year of 3.3 percent after consumer prices rose 3.7 percent in October from a year earlier, the fastest gain since April 2.009, said Alejandro Puente, an economist with Banco Bilbao Vizcaya Argentaria SA.

“Headline inflation has been somewhat higher than expected because of the incidence of fuels and foodstuffs,” policy makers said in a statement accompanying yesterday’s decision. “Inflation expectations are close to the target.”

The central bank targets 3 percent inflation, plus or minus 1 percentage point over a two-year horizon.

Economic Growth

The economy expanded 5.7 percent year-on-year in September on gains in the retail and fishing industries, compared with the 5.2 percent median estimate in a Bloomberg survey of 14 analysts.

“Robust September economic activity data and relatively elevated consumer-price pressures in October provide little reason for Chile’s central bank to rush to cut rates,” Florencia Vazquez, an economist at BNP Paribas, said in a Nov. 8 note e-mailed to investors.

Colombia’s industrial production leaped 9.5 percent in August from the year before, more than double the 3.6 percent median forecast in a Bloomberg survey and the largest gain since April 2.008.

Peru’s economic growth eased to 5.8 percent in September from the year earlier, after accelerating in the previous two months, the government’s statistics agency reported Nov. 15.

Peru’s central bank last week kept its benchmark rate at 4.25 percent for a sixth month, Colombia left its overnight rate at 4.5 percent for a third straight meeting on Oct. 28, while Mexico has been on hold since July 2.009.

‘Close Attention’

Chile’s economy, which expanded 8.4 percent in the first half of 2011, is starting to decelerate to growth rates nearing its long-term trend of 5 percent and remains vulnerable to shocks from the European crisis, De Gregorio said in an Oct. 19 speech in Santiago.

“Output figures are evolving close to projections in the last monetary policy report’s baseline scenario, while domestic demand is somewhat stronger,” the central bank said yesterday in reference to the September report that forecast economic growth of 6.25 percent to 6.75 percent in 2.011.

“We are paying close attention to external developments and we have the flexibility to act whenever necessary,” De Gregorio said on Oct. 19. “

The focus is now on the effects that the weak global economy will have on the Chilean economy, especially on growth and inflation.”

With assistance from Dominic Carey in Sao Paulo and Eduardo Thomson and Sebastian Boyd in Santiago. Editors: Philip Sanders, Richard Jarvie