Chile's central bank kept the country's overnight lending rate unchanged as policy makers bet that inflation has peaked.
Bank President Jose de Gregorio held the benchmark rate at 6.25 percent, the highest since January 2002, matching forecasts from all 20 economists surveyed by Bloomberg. Future rate changes will depend on new information, the bank said today in the policy statement on its Web site.
Inflation slowed to 8.3 percent in April from 8.5 percent in March, the biggest jump since 1996, as costs for energy and commodities such as corn and wheat rose worldwide. It was the second time annual inflation slowed in the past 12 months.
"The balance of risks has shifted away from inflation and to growth,'' said Vladimir Werning, a New York-based economist at JPMorgan Chase & Co. "This economic slowdown will eventually lead the central bank to consider cuts. At the moment the inflationary risk still makes it difficult to act.''
Growth expectations for this year have fallen to 4 percent from 5.4 percent in August 2007, according to forecasts compiled by the central bank. The bank will publish its own growth prediction for this year in a monetary policy report on May 12.
"The most recent data reaffirms the idea that annual consumer price inflation will keep falling in the course of coming months,'' the bank said.
Fuel Costs
Long-term expectations for annual inflation ``remain anchored around 3 percent,'' it said in the communique published after the policy meeting.
Annual inflation will slow to 4.7 percent at the end of this year and to 3.3 percent by April 2010, within the bank's target range of 2 percent to 4 percent, according to the median estimate of 26 economists in a central bank survey taken May 6.
Annual inflation has accelerated from 2.5 percent a year ago as frosts and drought made fresh food more expensive. High fuel prices have exacerbated an energy shortage, leading to higher electricity costs.
"The central bank is powerless to control price shocks,'' De Gregorio told a conference in Geneva on May 6. Instead, it seeks to prevent swings from rippling through the economy and leading to so-called second-round inflation. At its last meeting on April 10, the bank changed the bias on its policy statement to neutral, removing a sentence from its previous statement that said it couldn't rule out raising rates again.
Policy makers have kept the rate at 6.25 percent since January after raising it five times starting in June 2007. De Gregorio became president of the central bank in December.
The central bank last month agreed to buy $8 billion of U.S. dollars this year, increasing the bank's international reserves and curbing the appreciation of the peso.
"Today's decision was the most logical considering last month's decision to intervene in the market and the change to the bias,''' said Miguel Cardoso, chief economist at BBVA Chile in Santiago. "That's quite a strong signal about how they see monetary policy in the next few months.''
Bank President Jose de Gregorio held the benchmark rate at 6.25 percent, the highest since January 2002, matching forecasts from all 20 economists surveyed by Bloomberg. Future rate changes will depend on new information, the bank said today in the policy statement on its Web site.
Inflation slowed to 8.3 percent in April from 8.5 percent in March, the biggest jump since 1996, as costs for energy and commodities such as corn and wheat rose worldwide. It was the second time annual inflation slowed in the past 12 months.
"The balance of risks has shifted away from inflation and to growth,'' said Vladimir Werning, a New York-based economist at JPMorgan Chase & Co. "This economic slowdown will eventually lead the central bank to consider cuts. At the moment the inflationary risk still makes it difficult to act.''
Growth expectations for this year have fallen to 4 percent from 5.4 percent in August 2007, according to forecasts compiled by the central bank. The bank will publish its own growth prediction for this year in a monetary policy report on May 12.
"The most recent data reaffirms the idea that annual consumer price inflation will keep falling in the course of coming months,'' the bank said.
Fuel Costs
Long-term expectations for annual inflation ``remain anchored around 3 percent,'' it said in the communique published after the policy meeting.
Annual inflation will slow to 4.7 percent at the end of this year and to 3.3 percent by April 2010, within the bank's target range of 2 percent to 4 percent, according to the median estimate of 26 economists in a central bank survey taken May 6.
Annual inflation has accelerated from 2.5 percent a year ago as frosts and drought made fresh food more expensive. High fuel prices have exacerbated an energy shortage, leading to higher electricity costs.
"The central bank is powerless to control price shocks,'' De Gregorio told a conference in Geneva on May 6. Instead, it seeks to prevent swings from rippling through the economy and leading to so-called second-round inflation. At its last meeting on April 10, the bank changed the bias on its policy statement to neutral, removing a sentence from its previous statement that said it couldn't rule out raising rates again.
Policy makers have kept the rate at 6.25 percent since January after raising it five times starting in June 2007. De Gregorio became president of the central bank in December.
The central bank last month agreed to buy $8 billion of U.S. dollars this year, increasing the bank's international reserves and curbing the appreciation of the peso.
"Today's decision was the most logical considering last month's decision to intervene in the market and the change to the bias,''' said Miguel Cardoso, chief economist at BBVA Chile in Santiago. "That's quite a strong signal about how they see monetary policy in the next few months.''
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South america is finally coming into its own.
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