Chile’s Bank Considered Bigger Rate Increase in July

By Sebastian Boyd and Nathan Gill

     Aug. 7, 2008 (Bloomberg) — Chile’s central bank policy makers considered a 0.75 percentage point rate increase at their July meeting, before voting unanimously to raise interest rates by half a point, the bank said on its Web site.
     The bank raised the rate to 7.25 percent on July 10 after annual inflation reached a 13-year high of 9.5 percent. The vote for a half-point raise implied further rate increases, the central bank said today in a release of minutes from its meeting.
     “Given current circumstances, it was possible that a cumulative adjustment in the policy rate of more than 75 basis points would be necessary,” the central bank said.
Chilean economists expect policy makers to lift the overnight lending rate by a further half-point to 7.75 percent at their Aug. 14 meeting, according to the median estimate of 27 economists in a central bank survey published today.
     Inflation will slow to 8.0 percent in December, according to the central bank survey, compared with a year-end forecast of 7.5 percent in last month’s poll. The bank seeks to slow inflation to 3 percent within 24 months.
     Chile’s annual inflation rate held at the highest level since 1994 in July after consumer prices rose 1.1 percent that month. The median estimate of 17 economists surveyed by Bloomberg had been that prices would rise 0.7 percent in July.
     “Last month’s figures were somewhat higher than what was expected, and obviously that must be taken into account,” Finance Minister Andres Velasco said.
     Monthly inflation will probably slow to 0.8 percent in August, the bank’s survey of economists said.
     The bank published minutes of its July meeting and the results of the survey of economists, compiled Aug. 6, today on its Web site. Chile’s gross domestic product will expand 4.0 percent this year, the economists said, revising their previous 3.9 percent forecast.
     “We had said that the economy will grow 4 percent or more, in fact we said 4.2 percent,” Velasco told reporters today in Santiago. “Economists’ consensus got closer to the Finance Ministries forecasts.”

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