Chile, Peru keep most ex­pan­sive rates in Amer­ica

The Pak Banker - - COMPANIES/BOSS -

Chile and Peru left their bench­mark in­ter­est rates un­changed at four-year lows to stim­u­late growth, even as their cur­ren­cies slump and in­fla­tion ac­cel­er­ates. Chile's cen­tral bank board kept its bench­mark rate at 3 per­cent Thurs­day, as forecast by econ­o­mists. Peru's cen­tral bank main­tained its key lend­ing rate at 3.25 per­cent, as forecast by all 19 econ­o­mists.

Only war-rav­aged Ukraine and re­ces­sion-hit Rus­sia have lower real in­ter­est rates than Chile among in­fla­tion-tar­get­ing cen­tral banks in the Amer­i­cas and Europe. The two An­dean na­tions have main­tained their stim­u­lus poli­cies be­cause growth, for years the fastest among Latin Amer­ica's ma­jor economies, has fallen short of ex­pec­ta­tions, said Pe­dro Tuesta, an economist at 4Cast Inc. in Washington.

"Both economies have huge out­put gaps," said Tuesta in an e-mail. "Still, they won't be able to with­stand the pres­sure for much longer."

Chile's bench­mark in­ter­est rate is 1.6 per­cent­age points be­low in­fla­tion, com­pared with 0.3 point in Peru and close to zero in Colom­bia. In Mexico, the key rate is 0.3 point above in­fla­tion, and in Brazil the dif­fer­en­tial is 4.7 points.

Chile cut rates eight times in the year through Oc­to­ber and cen­tral bank Pres­i­dent Ro­drigo Ver­gara said ear­lier this month that bor­row­ing costs wouldn't fall fur­ther for the "fore­see­able fu­ture" as the weak peso keeps in­fla­tion above the tar­get range. The Chilean cur­rency closed at the low­est level for 12 years on Thurs­day. Chile's cen­tral bank has main­tained an ex­pan­sion­ary pol­icy as the eco­nomic re­bound forecast by the gov­ern­ment last year fal­ters. Ver­gara warned this month that the bank is plan­ning to cut its 2.25 per­cent to 3.25 per­cent growth forecast for this year. While eco­nomic growth slows, price-growth has picked up. In­fla­tion ac­cel­er­ated to 4.6 per­cent last month from 4.4 per­cent in June and has re­mained at or above the up­per limit of the 2 per­cent to 4 per­cent tar­get range since April 2014.

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