SANTIAGO: Chile and Peru have decided to keep borrowing costs unchanged as their central banks gauge prospects for stronger growth and the impact of currency weakness on inflation.
Chile’s central bank board kept the benchmark interest rate at 3 percen as forecast by all 24 economists surveyed by Bloomberg. Peru’s central bank maintained its key lending rate at 3.25 percent, as forecast by 18 of 20 economists. Two analysts expected a quarter-point cut to 3 percent.
The two Andean economies likely expanded at the slowest pace in five years in 2014 after a slump in prices for copper, their main export, damped investment and consumer demand. High inflation in Chile and currency weakness in Peru may persuade policy makers in both countries to keep rates on hold in the coming months, said Pedro Tuesta, a Washington-based economist at 4Cast Ltd.
“There is no immediate appetite among board members to ease policy any time soon” in Chile, Tuesta said in an e-mailed response to questions. Peru “may keep rates at this low level for a considerable time” as growth remains well below potential, he said. Chile’s central bank has paused after cutting rates eight times in the 12 months through October as inflation exceeded the target range for 10 consecutive months.
Consumer prices gained 0.1 percent in January, compared with the median estimate of analysts for a decline of 0.3 percent. Annual inflation was little changed at 4.5 percent, compared with the bank’s target range of 2 percent to 4 percent. “January’s inflation was unexpectedly high,” policy makers said in a statement accompanying the rate decision. “In the most likely scenario, annual inflation is expected to remain for some months above the upper bound of the tolerance range, and its evolution will be monitored with special attention.”
Wages climbed 7.2 percent in December from the year earlier, the second-fastest pace since March 2009. Chile’s economic growth rebounded over the same period, surprising the market that had forecast expansion would remain sluggish well into 2015. “Inflation, unemployment and wages are variables that should begin to ease in coming months and that will enable the central bank to resume rate cuts,” Cristobal Gamboni, senior economist at the local unit of Spain’s Banco Bilbao Vizcaya Argentaria SA. Gamboni expects the bank will next cut in the second quarter.
Peruvian policy makers lowered the rate by a quarter-point last month in a move that surprised all 18 economists surveyed by Bloomberg. The bank’s decision followed a report showing the economy expanded at a 0.3 percent annual pace in November, the weakest since 2009. While Peru’s annual inflation rate eased to 3.07 percent last month from 3.22 percent in December, it remains above the central bank’s target of 1 percent to 3 percent.
A further rate reduction would risk fueling inflation that’s been above target for 11 of the last 13 months, said Francisco Rodriguez, an economist at Bank of America Corp. “The board is worried about the inflationary pass through and the sol depreciation that would continue if they’re more aggressive in lowering rates,” Rodriguez said by phone from New York. Peru’s sol is trading at its weakest in close to six years after exports fell 9.3 percent in 2014, leaving a record trade deficit of $2.55 billion.
