Chile, Peru keep most expansive rates in America

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.