Banco de Chile

The Bank of Chile “continue[s] to reduce monetary stimulus,” raising rates yesterday to 3.5 from 3.25 per cent. Inflation fell last month and is below the 3 per cent target, at 2.7 per cent in the year to January. The trend, however, is strongly upward and recent deflation will be fresh in the minds of policymakers. Last month, Chile held.

Chile has held rates at 3.25 per cent, following its pledge to buy $12bn in the forex market to weaken the peso. Pundits had been split roughly equally between a rate hold and a small rate rise. The central bank has typically been raising rates regularly but by small increments of late (see chart, right).

Inflation in Chile is running at 3 per cent, exactly on target (which allows for one per cent either side of this) – but it is rising quickly. Chile recently pointed to the effect of the Fed’s $600bn stimulus programme on its currency – i.e. causing appreciation – and in doing so, joined a chorus of opposition from emerging markets trying to cope with an influx of “hot money”.

Chile’s Finance Minister says the Fed’s second round of quantitative easing put upward pressure on the peso, as he welcomed central bank plans to weaken the currency.

The peso has fallen very sharply on news that the Banco Central de Chile plans to buy $12bn in the foreign exchange markets. On the shopping list is $50m per day from January 5 to Feburary 9.

Thereafter, the central bank aims to offset the liquidity effects and “soften the impact on the prices of debt market instruments” by selling $10bn-worth of peso-denominated bonds plus $2bn-worth of short-term maturities. Read more

Chile has again raised rates, though it has suggested the pace of rate hikes may slow due to lower-than-expected inflation:

Inflation has proceeded slightly below expectations… With respect to the dollar, the peso remains fairly unchanged since the last meeting.

 Read more

Chile’s central bank is still raising rates, but more slowly. On Thursday, the Bank increased its key policy rate 25bp to 2.75 per cent, as expected. This marks a slowdown for the Bank, which has increased rates by 50bp every month since June.

Banco de Chile cited an appreciating peso and a slowdown in developed economies as key risk factors: “Slower than expected recovery in developed countries is an important risk factor facing emerging economies.” Inflation has also tempered more quickly than expected with annual inflation currently standing at 1.9 per cent; short- to medium-term inflation expectations have also fallen and are now bang on target at 3 per cent.

Chile’s central bank has agreed on the third consecutive half point rise, taking its policy rate to 2 per cent.

Interest rate futures point to a year-end level of 3.75 per cent, but analysts are divided about the likely pace of increase. Read more

Growing concern amongst Asian central bank governors about capital inflows, which have seen a number of countries embrace once-dreaded capital controls, appears to be spreading to Latin America. Chile’s unflappable central bank governor, José De Gregorio, today expressed his concern about the growing number of foreign investors piling money into emerging markets. He says it is time to keep an eye on capital inflows.

According to El Mercurio newspaper, this is what he had to say at a seminar:

Capital flows are worrying me . . . This is not yet a problem in the Chilean economy, but we have to remain relatively alert and thinking about what implications this will have for monetary policy.

High copper prices, global stock market gains and the expectation that Chile’s central bank will continue to raise rates regularly have helped push the peso currency higher – it recently touched a five-month high. It has eased a little today against the dollar, trading around 513 to the greenback.

If De Gregorio is concerned, Bertrand Delgado, a senior analyst at Roubini Global Economics, says he has a few options to manage dollar liquidity. Read more

Economists surveyed by Chile’s central bank believe a 50 basis point rate rise is on the cards for Chile. The August policy rate will rise from 1.5 to 2 per cent, according to the median estimate of 37 economists. At year-end, the rate will be 3.5 per cent – a 50bp rise from last month’s survey – rising to 5.75 per cent by mid-July 2012. Historical rates are shown below:

Chile, which has bounced back more strongly than expected from a devastating earthquake at the end of February, has hiked its key lending rate by 50 basis points, becoming the latest country in the region to start reining in monetary stimulus measures after recent rate rises by Peru and Brazil.

The half-point hike, to 1 per cent, was at the top end of market expectations, wrongfooting many who had expected the bank to take a more softly-softly approach.  The key lending rate had been at a record low of 0.5 per cent since July 2009 and the bank had not raised the rate since September 2008, when it was 8.25 per cent. Read more from Jude Webber on

After a couple of months of “will-they, won’t-they?” speculation, and, according to central bank minutes, increased discussion among bank board members themselves, Chile’s central bank is finally expected to begin raising interest rates when it meets on Tuesday.

Widespread expectations are for a 25 basis point rise, which would be the first increase since the bank jacked up its key monetary policy rate, or TPM, by 50 basis points in August 2008. The rate has been at a historic low of 0.5 percent since July 2009.

The bank has Read more

By Jude Webber

Official data showing that the Chilean economy grew at its fastest monthly rate in a decade must be music to the ears of Sebastián Piñera, the new president. His election pledge to boost annual growth to 6 per cent always sounded ambitious, and looked especially so after the country’s devastating earthquake at the end of February.

But what the April data revealed was a speedier-than-expected business rebound. Bloomberg puts this in context:

The economy expanded 8.2 percent in April from March, the biggest increase since 1996, and 4.6 percent from a year earlier, the central bank said today on its website. It was the quickest annual growth since September 2008 and double the median forecast of 10 economists surveyed by Bloomberg.

April’s expansion comes after the economy shrank the most since 1996 in March following an 8.8-magnitude earthquake on Feb. 27 that caused almost $30 billion in damage. The faster- than-forecast expansion added to speculation that the central bank will raise its benchmark interest rate June 15 for the first time since September 2008.

The data raise two questions. Read more

Simone Baribeau

Q: What do jitters over European debt, stubbornly high unemployment and earthquakes have in common?

A: They have all been cited as reasons for central banks to delay interest rate hikes.

It’s not just economic crises that cause central banks to postpone tightening monetary policy. Since the beginning of the year, a number of political and natural disasters have pressured banks to keep rates low. Here is Money Supply’s list of the top three non-financial events that kept rates low. Are we missing any? Comments welcomed below. Read more

By Jude Webber

As the song goes dime cuándo, cuándo, cuándo… (tell me when, when, when…).

The minutes of Chile’s May central bank meeting, when the key lending rate was kept on hold at 0.5 per cent, revealed that discussions intensified behind closed doors about when to start increases. No surprises there – there has been intensifying discussion about that for a while.

So the real question is perhaps not, ‘will rates rise at the next meeting, on June 15′, but ‘how much will they rise?’

Alberto Ramos at Goldman Sachs reckons on a 25 basis point rise. As he says:

The message in the minutes should be somewhat discounted as it reflects the data available up to that meeting … Since then the leading indicators of activity were significantly stronger than expected and today’s labor market report was also much better than expected. Assuming the global market sentiment does not deteriorate from here with the European fiscal situation the rate normalisation cycle should begin in June.

Chilean inflation data, he says, could provide the pointer – a worse than expected result could lead the bank to hike by a half point. Consumer prices rose 0.5 per cent in April, pushing annual inflation to the fastest pace since June 2009.

The minutes revealed it was unlikely to keep the rate unchanged for many more months and

…in that sense, the flows of information will allow us better to calibrate the size of the rate rise required to keep to the goal, but that does not imply that waiting will afford relatively more information about the optimum time to begin normalisation.

Roubini’s Bertrand Delgado reckons the central bank will start tightening in June or July with a 25 point hike and: Read more

By Jude Webber, Chile correspondent

So much is uncertain for Chile these days as it begins resurrecting itself after the February 27 earthquake estimated to have caused $30bn of damage. No one knows how sharply the economy will contract, or for how long, or how much inflation will spike in the short term. So the central bank’s announcement on March 18 that it is keeping its key interest rate at a rock-bottom 0.5 per cent until the second half of the year gives markets some certainty at least.

Here’s what the bank had to say:

The Board considers that, in the present circumstances-marked especially by the uncertainty associated with the effects of the catastrophe-, holding the monetary policy interest rate at its minimum level of 0.50% at least until the second quarter of 2010 is consistent with projected annual inflation standing at 3% over the policy horizon.

The central bank has proved itself to be both bold and flexible in recent months. Read more

Simone Baribeau

Monthly prices rose 0.3 per cent in February in Chile, there first monthly increase since September, spurred by transportation costs, the National Statistics Institute said today. These increases were relatively unaffected by the earthquake, which it the country on February 27, and is sure to affect prices in the coming months. Inflation still remains well below the central bank’s target range of 2 per cent to 4 per cent. The central bank has said it does not expect to raise its key rate, now at 0.5 per cent, until at least the second quarter of the year.

More than a million fifty-peso pieces were released in Chile during 2009 bearing the name ‘Chiie’.

The mistake was apparently made in December 2008, with neither the engraver nor the central bank noticing the error. The coins were released to the public. In October 2009, a coin collector spotted the mistake. Read more

The central bank of Chile has voted to keep the monetary policy interest rate at 0.5 per cent, saying it is likely to hold rates at this level until at least the second quarter. The board noted growing output and demand, falling unemployment and normalising lending. They said that in spite of European-generated market turbulence, the prospects for global recovery this year remained stable.

The Chilean central bank said the historic low of 0.5 per cent will be held “at least until the second quarter of 2010.” They also reiterated their plan to remain flexible in their policies “so that projected annual inflation stands at 3 per cent over the policy horizon.” In an upbeat statement, the bank predicted falling short-term inflation, stable medium-term inflation, expanding growth and declining unemployment.

Simone Baribeau

As expected, the Central Bank of Chile left its benchmark interest rate unchanged at its historic low of 0.5 per cent and plans to hold the rate at that level until at least the second quarter of 2010.

Afterwards, the bank said, “The pace of normalization will be comparable to expectations contained in the monthly survey, and more gradual than the one implicit in financial asset prices.” Read more