De Gregorio Says Chile Bank Will ‘Probably’ Cut Rates

By Nathan Gill and Sebastian Boyd
March 2 (Bloomberg) — Chile’s central bank will probably lower its benchmark lending rate for the third time in as many months at its next meeting on March 12, bank President Jose de Gregorio said today
The bank “took very aggressive action in its monetary policy in its last meeting,” De Gregorio said. “As we communicated after that meeting, very probably this will continue next week, but it’s something we will have to evaluate.”
The central bank is slashing interest rates after raising them to a 10-year high of 8.25 percent last year. Slumping domestic demand means inflation is no longer a threat, Manuel Marfan, a member of the rate-setting committee told El Mercurio in an interview published yesterday. Chile’s economy probably contracted 0.8 percent in January from a year earlier, according to the median estimate of 15 analysts in a Bloomberg survey.
De Gregorio spoke to reporters in Santiago today after meeting with President Michelle Bachelet, who warned of slower-than-expected growth in 2009 and said her government’s priority is creating jobs. De Gregorio’s remarks echoed a statement policy makers made after their last rate cut on Feb. 12.
                              Rate Cuts
The bank cut 2.5 percentage points from borrowing costs on Feb. 12, after having reduced by a full percentage point in January.
Inflation probably slowed to 5.9 percent in February from 6.3 percent in January, according to the median estimate of 13 economists in a Bloomberg poll. It reached a 14-year high of 9.9 percent in October.
“De Gregorio is anchoring market expectations,” said Rodrigo Aravena, an economist at Banchile Inversiones in Santiago. “The only thing to expect is a rate cut, the question is by how much.”
Chile’s peso fell 0.6 percent against the dollar after De Gregorio’s remarks, reaching 606.45 pesos per dollar at 11.52 a.m. in New York from 602.8 pesos at 10 a.m. The peso is the world’s second-best performing currency this year, according to data tracked by Bloomberg.
Bachelet’s government will today start distributing 40,000 peso ($66.07) handouts to 1.7 million poor families, the first step in a $4 billion package of tax breaks and subsidies aimed at adding 1 percentage point to 2009 growth. She still expects the economy to grow this year after a difficult first quarter, Bachelet said.
Bachelet is tapping a $20.2 billion stabilization fund where her government hoarded savings from a boom in copper exports. She will use the money to subsidize employment for young people and pay for infrastructure projects that the finance ministry says will create 120,000 jobs.
“All the measures that we have taken over the last months have revolved around a central axis: to protect the employment of all Chileans,” Bachelet said. Unemployment increased to 8 percent in the three months ending in January from 7.5 percent in the same month a year earlier.

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